Wall of debt payments awaits Sri Lanka amid economic meltdown

Sri Lanka has been faced with $8.6 billion worth of debt payments due this year as the implosion of its economy and worsening political turmoil cast doubt on its ability to pay any of it.

The South Asian country needs to honour a combined $2.2 billion of principal and interest payments for dollar-denominated bonds and loans, with the number rising to about $2.7 billion annually in both 2023 and 2024, available data compiled by Bloomberg show.

Global investors are scrutinizing the island nation's ability to weather its debt challenge after dwindling foreign reserves prompted a slump in its currency -- with surging living costs and power cuts triggering big protests.

Besides, worsening political upheaval following a cabinet reshuffle and the resignation of the central bank chief is contributing to uncertainties.

Sri Lanka had about $2.3 billion of foreign reserves in February.

Currently, it faces an imminent test of global investor confidence on April 18, when $36 million in interest on a 2023 dollar bond and $42.2 million on a 2028 note both come due, Bloomberg-compiled data show.

Meanwhile, a $1 billion sovereign bond maturing July 25 presents a bigger challenge.

"To get out of the crisis, the quick establishment of an effective government should be the first priority. Clinching a deal with the IMF should be next," Bloomberg Economics' economists Ankur Shukla and Abhishek Gupta wrote in a note Tuesday.

Sri Lanka also needs to seek help from neighbours India and China, as well as opting to restructure its dollar debt, Bloomberg Economics said.

"If the above steps do not secure enough dollars to finance debt repayments as well as imports in the near term, we think the government will prefer to default on its debt and use the available dollars to import food, fuel and other essentials," the economists said.

Some remain sanguine. New York-based Neuberger Berman, an investor in Sri Lanka's sovereign dollar bonds maturing this year, said it will continue to hold the notes due in July with the belief that the country will come to an agreement with the International Monetary Fund.

President Gotabaya Rajapaksa is struggling to assemble a team to seek a bailout from the IMF after his finance minister resigned within 24 hours of being sworn in. The former military officer repealed a five-day-old emergency order late Tuesday as crowds of protesters defied the proclamation that had given him sweeping powers to detain people and seize property.