On 12 April 2022, Sri Lanka's Ministry of Finance announced a unilateral suspension of payments on its external debt, including international sovereign bonds, foreign-currency-denominated loans, and bilateral credits, citing a critical shortage of foreign exchange reserves. The country formally entered default the following month after missing a coupon payment on its dollar bonds within the 30-day grace period. It was the first sovereign default in Sri Lanka's post-independence history.
The crisis combined several shocks. Tourism revenue, which had supplied roughly 10% of GDP, collapsed after the 2019 Easter bombings and the COVID-19 pandemic. A 2019 tax cut by the Gotabaya Rajapaksa government sharply reduced fiscal revenue. A 2021 ban on chemical fertiliser imports — intended to promote organic farming — hit rice and tea yields, worsening the trade balance. External debt servicing, money-financed deficits, and the global commodity price spike following Russia's invasion of Ukraine drained reserves to under $50 million in usable terms by April 2022.
Shortages of fuel, cooking gas, medicine, and electricity triggered mass protests known as the Aragalaya. President Gotabaya Rajapaksa fled the country and resigned in July 2022; Ranil Wickremesinghe assumed the presidency.
Sri Lanka reached a Staff-Level Agreement with the IMF in September 2022 and a $2.9 billion Extended Fund Facility was approved in March 2023, conditional on debt restructuring assurances from official creditors. An Official Creditor Committee was co-chaired by India, Japan, and France; China negotiated separately through the Export-Import Bank of China. Agreements in principle with bilateral creditors were reached in 2023, and a restructuring deal with international bondholders was finalised in late 2024.
The episode is frequently cited in debates over the G20 Common Framework, the role of Chinese lending in developing-country debt distress, and the sequencing of IMF programmes with creditor coordination.
Example
In April 2022, Sri Lanka's Finance Ministry, under Governor Nandalal Weerasinghe of the Central Bank, suspended payments on roughly $51 billion in external debt, triggering the country's first sovereign default.
Frequently asked questions
Chinese loans were a factor but not the largest share. At default, international sovereign bonds held by private creditors made up the biggest portion of external debt (~36%), followed by multilateral and bilateral creditors. China was the largest single bilateral creditor, ahead of Japan and India.
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