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Sri Lanka declares end of debt default, says economic crisis was ‘man made’

Sri Lanka’s Finance Ministry said on Saturday the island nation has officially ended its debt default.

In a statement, Mahinda Siriwardana, a top bureaucrat in the Finance Ministry said: “December 20 marked a major milestone in our economic recovery process as Sri Lanka officially exited sovereign default.”

The island nation had plunged into an economic crisis when it declared sovereign default in mid-April of 2022, its first since gaining independence from Britain in 1948.

The crisis was man made and could have been averted if the early warnings had been heeded with an early engagement with the International Monetary Fund (IMF), Siriwardana said.

This development comes after Fitch Ratings upgraded Sri Lanka’s long term credit default rating to ‘CCC’ from ‘CCC-‘ on Friday.

“The risk of another default on local currency debt has been reduced by the completion of the international sovereign bond restructuring and an improved outlook for macroeconomic indicators,” Fitch said.

The country had also faced a civil-war-like conditions and months of public protests that led to the fleeing of the then president Gotabaya Rajapaksa. Ranil Wickremesinghe, who then took over as the president, began the negotiations with the IMF soon after. His government then clinched the bailout a year later in March 2023.

Siriwardana also said: “While macroeconomic outcomes have indeed been satisfactory and the debt restructuring process is completed culminating in this rating upgrade, people still feel the pain from the crisis and the difficult remedial measures.”

He was perhaps referring to the time of unprecedented forex crisis that had triggered shortages of essentials and long queues were witnessed for fuel and cooking gas while the island faced power cuts for over 10 hours in 2022.

Stressing that no room exists for a repeat of policy errors, Siriwardana said: “This is indeed a historic moment and a time to celebrate but it is a moment that should never be repeated.”


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