Sri Lanka's default (2022)

On April 12, 2022, the finance ministry in Colombo announced an interim policy: external debt service was suspended pending a restructuring to be run with the IMF. On April 18, two coupons on international sovereign bonds, the ISBs, went unpaid; the thirty-day grace period ran out on May 18, and the country was in payment default for the first time in its history. The central bank had let the rupee float in early March, and it went from about 200 to more than 300 to the dollar within weeks. Before that came the 2019 Easter bombings, the tax cuts at the end of that year, tourism shut by the pandemic and the 2021 ban on chemical fertilizer. Fuel queues, power cuts, the Aragalaya protests: President Gotabaya Rajapaksa fled in July. On March 20, 2023 the IMF approved an Extended Fund Facility of about 3 billion dollars over four years. As a middle-income country, Sri Lanka had no access to the G20 Common Framework: it negotiated with an Official Creditor Committee co-chaired by Japan, India and France, and separately with the Export-Import Bank of China. The bilateral agreements were signed in June 2024. The exchange of some 12.5 billion dollars of ISBs closed in December, with bonds whose payments partly depend on growth (macro-linked bonds). In between, the 2023 domestic debt optimization had put part of the burden on pension funds, the EPF first among them. For a credit insurer, 2022 drew the line between a solvent buyer and a country that no longer was. The importer paid its rupees to its bank, which could not get dollars: the claim is then a transfer claim, subject to the policy's waiting period. And letters of credit from local banks could no longer find a confirming bank.