In May 2022, Sri Lanka defaulted on its debt for the first time in history when the country was negotiating a swap facility from a bilateral country. The lender was livid that Sri Lanka defaulted without informing the lender. Despite Sri Lanka was given a 30-day grace period to pay $78 million in unpaid interest, the Central Bank
ultimately failed to pay. The Governor informed ex President Gotabaya Rajapakse that it was only a “soft default”.
LNW is still to find a good definition for what a soft default really means in the banking world . Because for the writer a default is a default however big or small . This unplanned and unauthorized default not only did it impact Sri Lanka’s economic future for a long time, but it also raises an important question; what else is risk of default? His decision to default without parliamentary approval is only one of the list of the blunders that has caused serious harm to the economy.
The default has virtually put Sri Lanka out of world capital markets for ever. The ongoing economic crisis, the worst Sri Lanka has ever seen in its post-independence history, would next test the country’s largest banks’ resilience, as Fitch Ratings on Monday said their asset quality, earnings, capitalisation and liquidity could come under tremendous pressure, when the operating conditions deteriorate further due to the ongoing crisis..
Fitch rating agency said the sovereign credit default in April and rapid deterioration in the broader macro-economic environment, where the soaring interest rates, red-hot inflation and currency depreciation have narrowed the banks’ operational flexibility, which in turn would mute growth, trigger loan defaults and hike operating costs, putting enormous pressure on the earnings. Therefore for this foolish decision ably supported by the opposition who were running scared of a “super default” ( meaning unknown)
Nandalalweerasinge in my view should like #Gota go home to Australia . We can no longer experiment with academics and inexperienced pundits who try to impress using big words. To unwind some of the decisions he has taken for example hiking interest rates by 100% when inflation is driven by a shortage of foreign exchange and CBSLs inability to stabilize the foreign exchange by sticking to text book interventions, he has caused unrepairable damage to the livelihoods of the people of Sri Lanka.
There must certainly be better and practical and less cocky people in the Central Bank who can fill his shoes.
