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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Who sanctioned Sri Lanka’s Debt Default?

Who sanctioned Sri Lanka’s Debt Default?

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1Who sanctioned Sri Lanka’s Debt Default? Empty Who sanctioned Sri Lanka’s Debt Default? Thu Apr 14, 2022 11:00 am

God Father


Manager - Equity Analytics
Manager - Equity Analytics

Who sanctioned Sri Lanka’s Debt Default? 28d31610

Sri Lanka to temporarily suspend all normal debt servicing for an interim period pending a consensual restructuring of the obligations that are consistent with an IMF supported economic adjustment programme - Secretary, Ministry of Finance- adaderana.lk

Question being asked now:

Did the President and  Cabinet approve this?
Has the President and the Cabinet been informed of the very very serious repercussions that would follow this decision?
Has a comprehensive Cabinet paper been submitted by the Minister of Finance recommending this move and has the IMF and the World Bank supported the move?
Have such assurances been obtained from the IMF and World Bank before making this far-reaching announcement?


"The Central Bank cannot unilaterally decide to pay or not to pay any debt of the Government, and has to act on the direct instructions of the Government".

*The background to the ISB settlement of USD 500 million on 18th January 2022*

The International Sovereign Bond settlement of USD 500 million on 18th January 2022 was a routine debt repayment out of the nearly USD 7,100 million forex debt servicing payments and over Rs.3,000 billion local debt servicing repayments that are due in 2022. In that regard, there was absolutely NO policy provision or intention to delay or stop such ISB settlement, or for that matter, delay or stop any other local or foreign debt servicing payment.

It is the responsibility of the Government to borrow and to repay. The Central Bank cannot unilaterally decide to pay or not to pay any debt of the Government, and has to act on the direct instructions of the Government. Further, it is the responsibility of the Government to make funds available for the repayments of all debt servicing, local and foreign.

If, for any reason, the Government were to decide to default on its debt repayments, that would have to be a considered decision of the Government. If so, the Cabinet of Ministers would have to take that decision and instruct the Central Bank not to make re-payment of the government’s debts. Further, if such a far-reaching and vital decision were to be taken, it will have to be the Cabinet that would have to take the responsibility for the repercussions that would follow from such a default.

In any event, if at any time in the future, the Minister of Finance is of the opinion that any or all debt repayments due to be settled by the government of Sri Lanka should be stopped or restructured, he could advise the Cabinet of Ministers of such intention via a Cabinet Paper and have any or all debt repayments stopped or restructured, so that such decision could be taken by the Cabinet of Ministers. Until that decision is taken, it would be the responsibility of the Ministry  of Finance and the Central Bank to take every effort to make the  repayments of all Government debts falling due.

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