Top Economists Call for Immediate Suspension and Restructuring of Sri Lanka's Debt Following Cyclone Ditwah
A group of about 120 economists, including Joseph Stiglitz, Jayati Ghosh, Thomas Piketty, Martín Guzmán, and Kate Raworth, have called for the immediate suspension of Sri Lanka's external sovereign debt payments and a new debt restructuring in the aftermath of Cyclone Ditwah. The cyclone, which President of Sri Lanka described as the largest disaster in the country's history, killed over 600 people and destroyed hundreds of thousands of homes.
Sri Lanka's national debt, totaling $9 billion, was restructured last year after the country's 2022 default. Before the cyclone, annual debt repayments accounted for about 25% of government revenues. The economists warn that the devastation caused by Cyclone Ditwah risks exhausting the fiscal space that had been created by the current restructuring and International Monetary Fund (IMF) lending.
The group urges an immediate suspension of external debt payments and a debt restructuring that would restore debt sustainability under the new, more challenging circumstances. They also highlight that the country has been continuing to borrow externally from the IMF, having sought a $200 million emergency loan.
Debt Justice has found that following the 2024 restructuring, private sector creditors are set to earn roughly 40% more profit from lending to Sri Lanka than from lending to the US government. IMF rapid financing instruments, such as the emergency loans Sri Lanka has accessed, are typically repaid within three to five years, and further disaster-related lending is anticipated as the country copes with the cyclone's devastation.
