ABSTRACT
In April 2022, Sri Lanka defaulted on foreign debt for the first time in post-independent history. This chapter attempts to provide a comprehensive analysis regarding the causes of sovereign default and the potential foreign debt outlook of Sri Lanka. Excessive reliance on foreign commercial borrowings after transitioning to a middle-income country without addressing the structural weaknesses in the economy resulted in Sri Lanka's debt becoming unsustainable. Since mid-2000, Sri Lanka started to rely heavily on non-concessionary loans, such as Eurobonds and export credits, without developing the repayment capacity, subsequently leading to sovereign default.
