A group of leading global economists, including Nobel Prize winner Joseph Stiglitz, has called for the suspension of Sri Lanka’s debt repayments as the country struggles to recover from the devastation caused by Cyclone Ditwah.
More than 600 people were killed and hundreds of thousands of homes destroyed across the island in what President Anura Kumara Dissanayake described as the “largest and most challenging natural disaster in our history.”
Sri Lanka’s national debt of $9 billion (£6.8 billion) was restructured last year following lengthy negotiations after the government defaulted on repayments in 2022. However, development campaigners warned at the time that the burden on taxpayers remained unsustainable. Even before the cyclone, annual debt repayments were expected to consume around 25 percent of government revenue—an exceptionally high level by international and historical standards.
In a statement, 120 global experts called for fresh debt restructuring to bring repayments down to a manageable level in light of the scale of environmental destruction. Alongside Stiglitz, signatories included Jayati Ghosh, a prominent Indian development economist at the University of Massachusetts Amherst; inequality expert Thomas Piketty; former Argentine economy minister Martín Guzmán; and Kate Raworth, author of Doughnut Economics.
“Sri Lanka is now confronting a severe economic shock triggered by the recent cyclone, extensive flooding and landslides, which have caused widespread damage to infrastructure, livelihoods, and key sectors of the economy,” the economists said.
They warned that the environmental emergency is likely to absorb—and possibly exceed—the limited fiscal space created by the current debt restructuring. Sri Lanka has already taken on additional external debt from the International Monetary Fund (IMF), and further borrowing to address disaster impacts is expected.
The group 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 even after the 2024 restructuring deal, under which some investors accepted reduced repayments, private sector creditors were still set to earn 40 percent more profit from lending to Sri Lanka than from lending to the US government.
Since the cyclone struck last month, the Sri Lankan government has requested a $200 million emergency loan from the IMF to manage the immediate crisis. However, funds provided under the IMF’s Rapid Financing Instrument are typically expected to be repaid within three to five years.
Meanwhile, scientists from World Weather Attribution—a coalition of climate experts—said global heating likely worsened the severity of flooding in Sri Lanka, as well as in other Asian countries such as Indonesia and Malaysia, which have also been badly affected in recent weeks.
A UK government spokesperson said Britain recognised the devastating impact of Cyclone Ditwah on Sri Lanka’s population. The spokesperson added that the UK has committed to supporting recovery efforts, including £1 million in humanitarian assistance delivered through the Red Cross, UN partners, and civil society organisations to provide emergency supplies and life-saving care.
Source: The Guardian
