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Sri Lanka, facing dire economic crisis, defaults on debts for first time in its history

By Ashley Williams
Sri Lanka, facing dire economic crisis, defaults on debts for first time in its history
Protesters shout slogans and wave Sri Lankan flags during a protest in front of the Presidential Secretariat in Colombo, Sri Lanka, on Tuesday. Sri Lanka faces its worst economic crisis in decades due to the lack of foreign exchange, resulting in severe shortages in food, fuel, medicine, and imported goods. Photo by Chamila Karunarathne/EPA-EFE

May 20 (UPI) -- For the first time in Sri Lanka's history, the economically ailing nation has defaulted on its debts amid an ongoing financial and political crisis exacerbated by the Ukrainian war and COVID-19 pandemic.

As the country's citizens struggle to cope with a nearly 40% inflation rate, shortages of gas, medication and food, and rolling power blackouts, Sri Lankans have staged protests across the country.

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The government of Asia's oldest democracy entered a "pre-emptive default" on its debts after missing the 30-day grace period for missed interest payments on two of its sovereign bonds, the Sri Lankan central bank governor said Thursday.

"Our position is very clear, we said that until they come to the restructure (of our debts), we will not be able to pay," said Nandalal Weerasinghe, according to BBC News, after Sri Lanka missed the deadline for paying $78 million in payments.

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The country is seeking to restructure more than $50 billion in foreign debt. The finance ministry says the country currently has $25 million in usable foreign reserves.

The country is in talks with the International Monetary Fund over a bailout program.

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According to the credit rating agency Moody's, this is the first time in the last 100 years that an Asia-Pacific nation has defaulted.

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Defaults can negatively impact a country's reputation with investors and lower the likelihood of being able to borrow necessary funds for international markets.

The economic situation in Sri Lanka has become so dire that the government announced last month its plans to stop repaying international debts to conserve its dwindling foreign currency reserves.

The 22 million people living in Sri Lanka have dealt with acute food, fuel and medication shortages, along with a rise in costs for basic food items like rice, on a daily basis in its worst economic crisis since gaining independence in 1948.

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