The G20 could help solve Sri Lanka’s debt crisis. Will he step up? | Business and Economics
In February, the finance ministers of the G20 countries met to discuss the challenges facing the global economy. It was an opportunity to help Sri Lanka, a country that is on the front line of the debt crisis that has engulfed dozens of countries around the world in recent years.
It was disappointing that the last chairman’s summary and outcome document paid only lip service to alleviating the challenges faced by the people of Sri Lanka.
Although he recognized the “need to address debt vulnerability” globally, and “look[ed] forward to a speedy resolution of Sri Lanka’s debt situation”, no concrete commitments were made or any actions taken.
The G20 countries include Sri Lanka’s major bilateral creditors including China, India, Japan and South Korea; as well as influential members of multilateral credit organizations, including the United States and European countries. If this group cooperated effectively, they could provide debt relief to Sri Lanka, and safeguards to strengthen people’s economic and social rights in times of crisis.
Because although the news cycle may have moved on, Sri Lanka’s economic crisis is still rising and affecting people terribly. High inflation and limited social protection, along with difficulties accessing essentials such as food and health care, have a major impact on their lives and rights.
According to the World Food Programme, for example, one in three households was food insecure in December 2022. The goals for 2023 are also not encouraging: a quarter of people are expected to remain in poverty, and a according to the World Bank, an important economy. constipation is likely.
Sri Lanka’s debt burden is affecting the government’s ability to guarantee human rights. The public debt-to-GDP ratio increased from 93.6 percent at the end of 2019 to 114 percent at the end of 2021.
Even before the economic crisis made international headlines, Sri Lanka was quite international in the amount it spent to service its debt. In 2020, before the latest crisis, a staggering 71.4 percent of government revenue was spent just on paying interest
Interest payments are the largest category of government expenditure, and a large amount of new government borrowing was used just to pay the interest on Sri Lanka’s loans.
Servicing this debt has reduced the government’s ability to spend on sectors such as health, education and social protection, which have a direct impact on people’s welfare. A study this month found that half of the families in Sri Lanka have to reduce what they feed their children.
It is necessary to release Sri Lanka from this debt trap, to break a spiral that is eroding the human rights of too many of the 22 million people of the island.
The government of Sri Lanka is currently engaged in complex debt negotiations, which are essential to access financial assistance from the International Monetary Fund. The IMF finalized a staff-level agreement with the government last year, offering a loan of about $2.9bn. However, the terms of the IMF agreement required sufficient proof of debt restructuring and relief from Sri Lanka’s creditors before the loan was terminated and funds disbursed.
Although IMF financing may be the reason why Sri Lanka’s debt is in the news today, creditors should focus on debt resolution so that economic and social rights can be better guaranteed. Past IMF programs have included conditions that had a negative impact on human rights, such as cuts in public spending and other austerity measures. Workers in Sri Lanka recently went on strike against measures implemented by the government to confirm supposed IMF funding, such as tax increases.
Sri Lanka’s debt negotiations are complex for a number of reasons, including the range of parties involved. Nearly half of Sri Lanka’s total external debt is in bonds on the open market and partly owned by private entities such as hedge funds. One of these private creditors has already sued the Sri Lankan government in an American court for debt repayment. Then there are bilateral creditors, and some debts are also held by multilateral institutions such as the Asian Development Bank and the World Bank Group.
Although there seems to have been some progress in these discussions in recent weeks, no solution appears in sight. The lack of transparency regarding how discussions are held means that it is not clear what the barriers are and how long the process will take.
How these conversations are conducted is important. The fact that Sri Lanka’s debt repayments are so heavy raises questions about how such agreements were made in the first place. Transparency, participation and accountability are essential to ensure that the current crisis is not repeated.
Creditors of Sri Lanka cannot be guided only by their commercial or national interests. As Amnesty International’s report on Sri Lanka’s economic crisis from October 2022 noted, international financial organizations, multilateral development banks and private corporations have obligations and responsibilities to respect international human rights.
As these negotiations progress, debt restructuring and debt relief should allow Sri Lanka to service its external debt without affecting its ability to meet its human rights obligations, and to guarantee economic and social rights of people. All options for debt relief should be on the table, including debt cancellation if necessary.
Urgent, coordinated international action is essential to ensure that the Sri Lankan government can effectively respond to the crisis and protect people’s rights. It has been almost a year since Sri Lanka first defaulted on its debt, and six months since the IMF staff level agreement expired.
More G20 meetings are scheduled for this year, and they must prioritize debt relief for Sri Lanka in line with human rights standards. Postponing decisive action on Sri Lanka will only delay recovery and add to the human suffering in the country.
The views expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera.
