Pakistan’s banks operating in Sri Lanka are in hot waters as their exposures of around Rs26.78 billion are at stake due to the worsening economy of the country. Arif Habib Limited said in a report that some of the Pakistani banks are exposed to the Sri Lankan economy either through branch banking or investments in the government debt securities. It said that MCB Bank has eight branches in Sri Lanka while Habib Bank Limited (HBL) operates with three branches in the country. With respect to investment in the government securities, the analysts summarised the overall exposure of banks along with the potential impact on their books, which include MCB with an exposure of Rs8.343 billion, United Bank Limited (UBL) Rs9.03 billion, HBL Rs8.091 billion and Askari Bank Limited Pakistan (AKBL) Rs1.324 billion. The economic crisis in Sri Lanka seems to be worsening as the authorities announced a temporary default on its foreign debts. With more than $50 billion in external debt, and foreign exchange reserves hovering around $1.9 billion (last month), the country is currently struggling to make payments on its international sovereign bonds. The media sources suggest, this week $36 million interest payment is due on Sri-Lanka’s 2023 dollar bond as well as $42.2 million on 2028 note. Moreover, a $1 billion sovereign bond is maturing on July 25, 2022. The extraordinary measure taken by the Sri Lankan authorities to halt payments on foreign debt is to preserve its dwindling reserves for the purpose of importing essentials such as food, fuel and medicine. Going forward, the analysts believe, the options available to the Sri-Lankan government include negotiation of a settlement in which bondholders are given new bonds that are worth less but help provide some partial compensation, or restructuring of the current ones with the support of the International Monetary Fund (IMF) which media sources claim to be likely Sri Lanka’s strategy.