Economists Urge Suspension of Sri Lanka’s Debt Payments Following Cyclone Devastation

In the wake of the catastrophic impact of Cyclone Ditwah, a coalition of leading economists, including Nobel laureate Joseph Stiglitz, has called for Sri Lanka’s debt payments to be paused. The cyclone caused extensive damage, leading to the loss of over 600 lives and the destruction of countless homes, prompting President Anura Kumara Dissanayake to label it as the “largest and most challenging natural disaster in our history.”

Impact of the Cyclone on Sri Lanka’s Economy

The nation is grappling with a staggering $9 billion national debt, which underwent restructuring last year following a government default in 2022. Despite this restructuring, development advocates cautioned that the burden on Sri Lankan taxpayers was still untenable. Pre-cyclone forecasts indicated that annual debt repayments would consume approximately 25% of the government’s revenues—a figure that is high by both international and historical standards.

In their formal statement, the group of 120 economists advocated for new restructuring efforts to adjust the country’s debt obligations, acknowledging the extensive environmental damage wrought by the cyclone.

Voices of Experts

Along with Stiglitz, prominent figures such as Indian economist Jayati Ghosh from the University of Massachusetts, inequality specialist Thomas Piketty, former Argentinian economy minister Martín Guzmán, and Kate Raworth, the author of the influential book *Doughnut Economics*, have signed the letter. They pointed out the severe economic repercussions Sri Lanka is facing due to the cyclone’s impact, which has ravaged infrastructure, livelihoods, and vital economic sectors.

They stated, “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 incurred from the International Monetary Fund (IMF), and further borrowing to address the disaster’s aftermath is likely.”

Calls for Immediate Action

The economists urged an immediate pause on Sri Lanka’s external sovereign debt payments and proposed a fresh restructuring plan to ensure long-term debt sustainability given the new circumstances. Research by the group Debt Justice revealed that after the recent debt restructuring, private creditors could potentially earn profits 40% higher than what lending to the US government would yield.

Since the cyclone’s devastation last month, the Sri Lankan government has sought a $200 million emergency loan from the IMF to navigate the immediate crisis. However, loans from this “rapid financing instrument” typically necessitate repayments within three to five years, raising further concerns about the nation’s financial future.

The Climate Connection

Experts from the World Weather Attribution coalition have indicated that climate change likely intensified the severity of the flooding impacts in Sri Lanka, alongside other regions such as Indonesia and Malaysia, which also faced severe weather in recent weeks.

A spokesperson for the UK government acknowledged the profound impact of Cyclone Ditwah on the Sri Lankan population, reaffirming their commitment to support the nation’s recovery through humanitarian assistance and international collaboration. They noted that approximately £1 million has already been donated to humanitarian efforts via the Red Cross, United Nations partners, and local organizations to provide essential relief.

Conclusion

The situation in Sri Lanka underscores a critical intersection of environmental crisis and economic challenges, making it imperative for swift international support and actionable policy changes. The call for halting debt payments is a plea for allowing the nation the breathing space needed to recover and rebuild.