A nine-member International Monetary Fund (IMF) team began bailout talks on Monday in Sri Lanka’s capital with officials, including Prime Minister Ranil Wickremesinghe, on how to structure what will be Sri Lanka’s 17th loan program with the global lender.
Economic mismanagement and the COVID-19 pandemic have left Sri Lanka battling its worst financial problems in seven decades, and a lack of foreign exchange has stalled imports of essentials including fuel, food and medicines.
Schools were closed and all non-essential government services halted on Monday in Sri Lanka as it begins a two-week shutdown to conserve fast-depleting fuel reserves.
Cash-strapped Sri Lanka defaulted on its debt for the first time in its history as the country struggles with its worst financial situation.
The last time Sri Lanka experienced such a crisis was 70 years ago.
A 30 day grace period to repay Ksh.9 billion (U.S$78m) of unpaid debt interest payments expired on May 18 this year..
The governor of Sri Lanka’s central bank said the country was now in a “pre-emptive default”.
“Our position is very clear, we said that until they come to the restructure, we will not be able to pay. So that’s what you call pre-emptive default,” said the country’s central bank Governor P Nandalal Weerasinghe.
Sri Lanka’s economy has been hit hard by the pandemic, rising energy prices, and populist tax cuts. A chronic shortage of foreign currency and soaring inflation had led to a severe shortage of medicines, fuel and other essentials.
Defaults happen when governments are unable to meet some or all of their debt payments to creditors.
The IMF team will stay in Colombo through June 30, 2022.