Sri Lanka Announces Default On All External Debt.

Why in news?

• The country has announced a pre-emptive default on all its foreign debt totalling $51 billion as a “last resort” while the island nation struggles to cope with a grave economic crisis. This has led to a situation called Sovereign Default.
• The immediate debt default was to ensure “fair and equitable treatment of all creditors” ahead of an International Monetary Fund assisted recovery programme for the nation.
• Sovereign Default- It refers to the failure of the government of a sovereign entity to pay back principal and interest payments when they are due.
• Consequences of default – Disposing of the debts reduces the total debt owed by a state to its creditors, and subsequently, the principal and interest repayments.
• It receives a lower credit rating, becoming less attractive to investors, and it will become difficult for the state to access new funds from the international bond market.
• Sri Lanka is not the first country to default in its external loans. In 2020 Lebanon, Argentina, Belize, Zambia, Suriname, defaulted. Greece became the first developed country to default on its debt to the IMF in 2015.