The Sri Lankan Ministry of Finance announced on Tuesday that the country will default on its external debt, pending a bailout by the International Monetary Fund (IMF).

Debt repayments would be restructured in a manner consistent with an economic adjustment program supported by the IMF, which will apply to all debt repayments, the ministry said in a statement.

The effects of the COVID-19 pandemic and the Ukraine crisis have eroded Sri Lanka's fiscal position that continued normal servicing of external public debt obligations has become impossible, according to the statement.

Creditors, including foreign governments that had lent to the South Asian nation, are free to capitalize any interest payments due to them from Tuesday afternoon, or opt for payback in Sri Lankan rupees, said the statement.

However, it said credit facilities and any amounts disbursed under existing credit facilities are not subject to this policy and shall be serviced normally.

"The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic's financial position and to ensure fair and equitable treatment of all creditors," the statement said.

Severe economic crisis

Sri Lanka is presently in the midst of its economic worst crisis since independence, with shortages of foreign exchange, fuel and other essential supplies.

The country's foreign exchange reserves dropped by 16 percent to $1.93 billion in March, central bank data showed. On April 5, the U.S. dollar reached over 300 against the Sri Lankan rupee for the first time.

In March, inflation hit 18.7 percent in the country, and it will likely surge to around 20 percent in the second and third quarters of this year, according to the latest Bloomberg estimates.

(With input from Xinhua)

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