A group of the world’s top economists including the Nobel prize winner Joseph Stiglitz have called for Sri Lanka’s debt payments to be suspended as it tackles the devastation caused by Cyclone Ditwah.
More than 600 people were killed and hundreds of thousands of homes destroyed across the island, in what Sri Lanka’s president, Anura Kumara Dissanayake, called the “largest and most challenging natural disaster in our history”.
The country’s $9bn (£6.8bn) national debt was restructured last year, after lengthy negotiations with creditors after the government defaulted on repayments in 2022. But development campaigners warned at the time that the burden on Sri Lankan taxpayers remained unsustainable.
Before the cyclone hit, annual repayments were expected to total 25% of government revenues – a high level by international and historical standards.
In a statement, the group of 120 global experts called for fresh debt restructuring to restore the country’s repayments to a manageable level, given the scale of environmental destruction.
Alongside Stiglitz, the signatories include Jayati Ghosh, a renowned Indian development economist at the University of Massachusetts Amherst in the US, the inequality expert Thomas Piketty, the former Argentinian economy minister Martín Guzmán, and Kate Raworth, the author of Doughnut Economics, a widely read book about capitalism and the environment.
“Sri Lanka is now confronting a severe economic shock triggered by the recent cyclone, extensive flooding and landslides, which has inflicted extensive damage to infrastructure, livelihoods, and key sectors of the economy,” they said.
“This environmental emergency is poised to absorb – and potentially exceed – the extremely limited fiscal space created by the current debt restructuring package. Additional external debt is already being taken on from the [International Monetary Fund (IMF)], and more lending to deal with the impacts of the disaster is likely.”
They called for the “immediate suspension of Sri Lanka’s external sovereign debt payments, and a new restructuring that restores debt sustainability under the new circumstances”.
Research by the campaign group Debt Justice found that after the 2024 debt restructuring deal, which involved some investors accepting a “haircut” on expected repayments, private sector creditors were still on course to make 40% more profit lending to Sri Lanka than to the US government.
Since the cyclone hit last month, the Sri Lankan government has asked for a $200m emergency loan from the (IMF to help it through the immediate crisis, but disbursements under this “rapid financing instrument” are usually expected to be repaid within three to five years.
Scientists at World Weather Attribution, a coalition of climate experts, found that global heating was likely to have exacerbated the severity of Sri Lanka’s flooding, as well as that of other Asian countries, including Indonesia and Malaysia, that have also been badly affected in recent weeks.
A UK government spokesperson said it recognised the devastating impacts of Cyclone Ditwah on the people of Sri Lanka.
“This is why we are committed to supporting Sri Lanka’s recovery through humanitarian assistance and international coordination. We have already provided £1m of humanitarian support via the Red Cross, UN partners and civil society organisations to deliver emergency supplies and life-saving care.”
Source: The Guardian
–Agencies
