Economists Urge Sri Lanka to Suspend Debt Payments Following Cyclone Ditwah's Devastation
A coalition of 120 leading economists, including notable figures such as Joseph Stiglitz, Jayati Ghosh, Thomas Piketty, Martín Guzmán, and Kate Raworth, has called for the immediate suspension of Sri Lanka's external sovereign debt payments and a comprehensive new debt restructuring in light of the recent devastation caused by Cyclone Ditwah.
The cyclone, described by President Anura Kumara Dissanayake as the largest and most challenging natural disaster in Sri Lanka’s history, resulted in over 600 deaths and destroyed hundreds of thousands of homes. This severe environmental emergency threatens to overwhelm the limited fiscal space created by the country's recent debt restructuring.
Sri Lanka, which has a $9 billion national debt restructured last year after a 2022 default, faced pre-disaster debt repayments estimated at 25% of government revenues. The economists highlight that while the country is already taking on additional external debt from the IMF, more lending is likely, exacerbating fiscal pressure.
Sri Lanka has requested a $200 million emergency loan from the IMF's rapid financing instrument to manage the crisis; such loans typically require repayment within three to five years. Research by Debt Justice indicated that private sector creditors are projected to earn 40% more profit from lending to Sri Lanka post-2024 restructuring than from lending to the US government.
In response to the disaster, the UK government has pledged £1 million in humanitarian aid to Sri Lanka through partnerships with the Red Cross, UN agencies, and civil society organizations.
Given these circumstances, the economist group calls for an immediate halt to external debt repayments and a new restructuring process that better aligns debt sustainability with Sri Lanka's drastically altered economic realities following Cyclone Ditwah.
