Market history · Sovereign credit ·
Sri Lanka defaults on its foreign debt
On 12 April 2022 Sri Lanka said it would suspend payments on its foreign debt, and when a grace period on missed bond interest expired in May it was in default for the first time in its history. The country had run out of foreign currency to pay for fuel, food and medicine, and the president resigned in July after widespread protests.
Analysts cited a mix of causes: tax cuts, the loss of tourism income in the pandemic, rising commodity prices and a large burden of debt owed to a range of creditors, including bondholders, China and other governments. Bondholders agreed a restructuring in 2024.
The default also raised questions for other emerging-market bonds and for how the many different kinds of creditor would share losses.
The takeaway
A sovereign default affects bondholders differently depending on their claims. The restructuring can take years.
Sources
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