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Sri Lanka announces default on all of its $51 billion external debt

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Sri Lanka announces default on all of its $51 billion external debt

Sri Lanka has declared itself in default as a last resort, expressing its inability to repay all its foreign debt totaling $51 billion.

  • Be aware that this island country is struggling to come out of a serious economic crisis. This has created a situation like “sovereign default”.
  • This inability to repay the loan is intended to ensure fair and equitable treatment of all lenders prior to the International Monetary Fund-backed recovery program.

What is Sovereign Default?

When a sovereign government fails to pay the principal and interest on time, it is called a sovereign default.

Result of Default:

  • By settling the debt, the total debt owed by the lenders to the government is reduced. Along with this, the repayment of principal and interest also gets reduced. However, this lowers the credit rating of the country, and makes it less attractive to investors. As a result of this, it becomes difficult for the country to get fresh funds from the international bond market.
  • Sri Lanka is not the first country to declare itself as default on external debt. In the year 2020, Lebanon, Argentina, Belize, Zambia and Suriname also declared themselves as defaulters. In 2015, Greece became the first developed country to declare default on loans from the International Monetary Fund.

Source – The Hindu

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