As bailout talks began on Monday, Sri Lanka said it had requested emergency financial assistance from the International Monetary Fund (IMF).
Following India’s representations, the international financial organisation will consider offering aid.
Meanwhile, a major credit rating firm predicted “a series of defaults” on Sri Lanka’s foreign obligations after officials announced a pay freeze.
The news comes after Moody’s cut Sri Lanka’s bond rating.
Sri Lankan officials, led by Finance Minister Ali Sabry, are in Washington this week for discussions with the International Monetary Fund (IMF), as the South Asian country faces its worst economic crisis in more than 70 years.
The Minister of Finance has requested a Rapid Financing Instrument (RFI) from the International Monetary Fund (IMF). An RFI is typically granted to an IMF member country that has “immediate” financial needs due to severe commodity price increases, natural disasters, or conflict. It is not necessary for the country to have a restructured economic plan.
The Sri Lankan government announced last week that it would temporarily default on $35.5 billion (£27.3 billion) in international debt due to the pandemic and the war in Ukraine, which rendered payments to overseas creditors “difficult.”
Sri Lanka’s finance ministry confirmed on Monday that it would miss interest rate payments on international sovereign bonds totalling $78 million.
The country’s decision to halt some payments, according to the rating agency, “will result in a series of defaults,” with the first coupon payments for the government’s international bonds due today, April 18, 2022. The interest payment on a bond is referred to as a coupon.
Sri Lanka was also on the verge of defaulting on its debts, according to two other major credit rating agencies last week.
Credit ratings are designed to help investors understand the level of risk they are taking on when purchasing a financial instrument; in this case, a sovereign bond.
Sri Lanka’s foreign debt is primarily made up of international sovereign bonds.
They are owned by countries like China, Japan, and India, as well as significant financial institutions such as BlackRock, UBS, and Allianz. Meanwhile, the Colombo Stock Exchange will be closed for the full week due to “present circumstances in the country.”