Cash starved Sri Lanka has annouonced that it will default on its $51 billion external debt on Tuesday while it is awaiting necessary financial assistance from the International Monetary Fund and other multilateral as well as bilateral partners. Colombo termed the move as the last resort.

In a statement, Sri Lanka’s finance ministry said that the government intends to pursue its discussions with the IMF “as expeditiously as possible with a view to formulating and presenting to the country’s creditors a comprehensive plan” for restoring the external public debt to a manageable level. It added that creditors, including foreign governments, were free to capitalise any interest payments due to them until a restructuring proposal can be carved out.

"The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic's financial position," the statement said.

Also read: Stern IMF cracks the whip on Sri Lanka–asks debt-ridden Colombo to raise taxes

Sri Lanka's total debt burden for this year is $6.9 billion. The next payment deadline of $1 billion is due in July. In January, the country averted a default by repaying $500 million international sovereign bond.

The deepening economic crisis in Sri Lanka, faced with the twin challenge of fast eroding foreign exchange reserves and surging inflation, has led to acute shortage of all essential items including food and medicines. Sri Lanka’s tax to GDP ratio is one of the lowest due to various populist measures undertaken by the Rajapaksa Gotabaya government.

The Gotabaya Rajapaksa government has now constituted a panel to look into the issue.

The Diplomat in a report said that “mismanaged government finances and ill-timed tax cuts,” have led to the problem.