It comes after a 30-day grace period to pay $78 million in outstanding debt interest payments expired on Wednesday.
The governor of the South Asian country’s central bank declared that the country had entered a “pre-emptive default.”
Later that day, two of the world’s largest credit rating agencies announced that Sri Lanka had also defaulted.
Defaults occur when governments fail to make some or all of their debt payments to creditors, according to the BBC.
It can harm a country’s reputation with investors, making it more difficult to borrow money on international markets, further eroding confidence in its currency and economy.
When asked if the country was in default, central bank governor P. Nandalal Weerasinghe said on 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.” That’s what you mean by “pre-emptive default.”
“There can be technical definitions… from their side they can consider it a default. Our position is very clear, until there is a debt restructure, we cannot repay,” he added.
Sri Lanka is attempting to restructure debts owed to foreign creditors totaling more than $50 billion in order to make repayment more manageable.
The pandemic, rising energy prices, and populist tax cuts have all had a significant impact on the country’s economy. A chronic lack of foreign currency and skyrocketing inflation had resulted in severe shortages of medicines, fuel, and other necessities.
Due to the escalating crisis, there have been large, sometimes violent, protests against President Gotabaya Rajapaksa and his family in recent weeks, according to the BBC.