The people of Sri Lanka and Pakistan are facing unimaginable suffering from crises they did not cause – the crisis of debt and the crisis of climate. From years before the pandemic, both countries have been accumulating unsustainable debt, which eventually COVID-19 pushed to record-high debt levels in recent years. This situation brought Sri Lanka to the point of bankruptcy and economic catastrophe, with dire consequences for its people. It is also now threatening heavily debt-burdened Pakistan with a similar fate in the midst of climate-induced deadly flooding not seen in 30 years.
The tale of these two countries sends an ominous warning to many other countries in the global South that are piling up more debt as lenders, both public and private, push more loans in their business-as-usual and profit-seeking approaches to systemic and unprecedented multiple crises.
Lending by international financial institutions such as the IMF and the World Bank doubled from $58 billion to $116 billion in 2020. Other multilateral institutions that include the Asian Development Bank, also pumped up lending, with loans increasing from $17 billion in 2019 to $43 billion in 2020. Manifested in Sri Lanka and Pakistan, debts sourced from commercial markets such as through bond issuances reached a record-breaking $425 billion in 2020 among low and middle income countries. For East Asia and the Pacific, public bond issuances soared in only a year from $94.7 billion in 2019 to $135.4 billion in 2020.
Borrowings of low and middle-income countries in Asia alone ballooned to $1.23 trillion by end-2020 or almost their entire export earnings for the year. Meanwhile, international financial institutions and private lenders drained public coffers of $115 billion in debt service payments, $98 billion more than 2019. For Pakistan, interest payments ate up 40 percent of revenues while the country struggled through the pandemic, economic and political turmoils, and austerity conditionalities under a 22nd IMF program.
Sri Lanka and Pakistan are only two of several countries showing the flaws of the G7/G20’s debt relief initiatives, among them, the exclusion of middle income countries in even minimal debt reduction efforts and the undiminished impunity of private lenders in refusing to participate in debt relief measures, limited as these schemes already are. Too little and short-sighted vis-a-vis the scale and systemic nature of the problem. Total suspension granted to the 43 participating countries reached only $13 billion or a mere one-fourth of the amount that the G20 announced the DSSI would deliver. They apply only to bilateral debts and exclude debt payments owed to multilateral and private lenders, which accounted for 61 percent and 22 percent, respectively, of total public external debts in the SA and EAP regions in 2020.
SRI LANKA IMF bailout – a cure worse than the disease
Sri Lanka is currently in its worst economic and financial crisis yet, which has triggered lack of fuel, cooking gas and power cuts, runaway inflation and deepened hunger and deprivation. But peoples’ voices continue to be silenced with teargas, water cannons, arbitrary arrests and detention, increased military surveillance and questioning of civil society leaders.
Acute shortages of food, fuel and other essentials have worsened, fueling the mass outpouring of protest and rising people power. But even as the economic crisis intensified and the risk of starvation grew more severe , the Sri Lankan government prioritized bondholders by paying $500 million for a maturing international sovereign bond in January 2022.
Sri Lanka’s debt-to-GDP ratio was already skyrocketing even before the pandemic, rising from 42% in 2019 to 104% in 2021. Borrowings went heavily into large scale infrastructure projects which have gone bust under the pandemic. Up to $8.6 billion in debt payments fall due this year, but the country has less than $1.94 billion in its reserves. Interest payments of $78.2 million are also supposed to be collected on April 18, followed by payment for a $1 billion maturing sovereign bond on July 25. The bond have since fallen below the face value at $0.54 to the dollar. (https://fortune.com/2022/04/09/sri-lanka-debt-crisis-inflation-rajapaksa-protest-imf-ukraine/)
The Sri Lankan government’s decision to suspend all foreign debt payments, pending negotiations for a bailout with the International Monetary Fund should have led to conducting an audit of questionable debts and asserting unconditional cancellation. Many of Sri Lanka’s loan-funded projects are of questionable nature, having caused the erosion of local livelihoods, massive environmental destruction and contributed to climate threats. The Norochcholai Lakvijaya Coal Power Plant 300 MW expansion project funded by US$300-400 million from China, was found using outdated technology and threatened the agricultural livelihoods and marine life in the area. Though already mothballed, there is no clarity on the public debt incurred which will eventually add to the Sri Lankan people’s fiscal burdens, unless canceled. The Hambantota Port Project is another example of contentious debts, said Nacpil. US$ $809.35 million was sunk in Phase 2 of this project mostly from China EXIM Bank loans. Then failing to meet high debt servicing costs, the previous Sri Lankan administration practically ceded the port to China for 99 years. Although this reduced loans to China by roughly $1 billion, loans have piled up since and borrowing costs are now higher.
The burden of filling in the gaps to provide even minimally for their families and children often falls heavily on women, at the expense of their own health and well-being amid the pandemic. One in four households in Sri Lanka is headed by women, of which half are widows and face persistent difficulties of juggling family responsibilities with paid and informal, precarious work, discriminatory attitudes toward women, limited access to finances, and inadequate social protection, among others.
As the Sri Lanka government resumes negotiations for a bailout with the International Monetary Fund, more stringent austerity conditionalities cannot be far behind. The toll on women and Sri Lankan working people will even be more severe. We already see the direction that the bailout of Sri Lanka is going from the IFIs’ pronouncements on requiring “deep structural reforms” and “economic stabilization” which have typically meant austerity measures, the privatization of essential public services, trade liberalization and financial deregulation. The South is painfully aware of the consequences of these prescriptions – wider impoverishment, more debt burdens and sharper inequalities.
We stand ever steadfast in our solidarity with the people of Sri Lanka in their unyielding struggles against undemocratic and repressive governance, for human rights, and for a better, people-centered and sustainable future.
Hold the Rajapaksa government to account for the crisis in Sri Lanka!
Stop using the Prevention of Terrorism Act to arbitrarily arrest activists! Stop the use of military and police violence against peaceful protesters!
Expose the culpability of the International Monetary Fund, World Bank and all other lenders — public and private! No to austerity loan conditionalities!
Asian Peoples’ Movement on Debt and Development | Centre for Environmental Justice |
Law and Society Trust | National Fisheries Solidarity Organization | FIAN Sri Lanka | Movement for Land and Agricultural Reform