Sri Lanka’s crisis shows how debt is devouring the Global South | Debt |
Priti Darooka
Source: SAAPE Network
Sri Lanka’s crisis shows how debt is devouring the Global South
From Africa to Asia to Latin America, billions go hungry while creditors profit.
By Anuka Vimuthi Silva and Amali Wedagedara
Protesters shout slogans during a rally against high taxes and increases in electricity and fuel charges, in Colombo, Sri Lanka, Jan. 30, 2024. [AP Photo/Eranga Jayawardena]
Sri Lanka is undergoing one of the most complex economic recoveries in its history. The country’s financial collapse in 2022 was precipitated by a toxic mix of unsustainable borrowing, poor fiscal management, and external shocks.
Mass protests erupted under the banner of Aragalaya, a broad-based citizens’ movement demanding accountability, economic justice, and an end to political corruption.
The uprising ultimately forced the resignation of the sitting president, Gotabaya Rajapaksa. However, following his resignation, the administration of Ranil Wickremesinghe recaptured power.
Delaying calls for new elections, in 2023 the Wickremesinghe administration negotiated $3bn of support from the International Monetary Fund (IMF) under its New Extended Fund Facility (EFF) arrangement. Later that year, to unlock a second instalment of this bailout package, Sri Lanka also reached a debt restructuring agreement with a group of creditors including China, India, and Japan.
Even though, by September 2024, the Sri Lankan people elected a progressive government led by President Anura Kumara Dissanayake, with a historic mandate, the new administration has since been trapped within the constraints imposed by the IMF and the previous political establishment.
The mainstream neoliberal narrative has been quick to highlight the arrangement with the IMF, known as the 17th IMF program, as a sign of stabilisation, praising the debt restructuring agreement and compliance with IMF conditions.
But what of the human cost of this “recovery”?
The punitive structural adjustment process includes privatising state-owned enterprises, disconnecting the Central Bank from state control, curtailing the state’s capacity to borrow, and subordinating national development aspirations to the interests of creditors. It has placed the burden of its Domestic Debt Optimisation on working people’s retirement savings, specifically the Employees Provident Fund (EPF), raising concerns among salaried workers whose current real incomes have already been cut by high inflation and higher taxes.
Public sector hiring has been frozen, major rural infrastructure projects in transport and irrigation have been delayed or cancelled, and funding for health and education has stagnated even as costs rise. The reforms undertaken to achieve macroeconomic stability, including interest rate hikes, tax adjustments, the removal of subsidies, increased energy pricing, and the erosion of workers’ pensions, have demanded a great deal from citizens.
The IMF program has also ushered in neoliberal legal reforms that erode the public accountability of the Central Bank, limit the government’s fiscal capabilities, and encourage the privatisation of land, water, and seeds through agribusiness.