In recent weeks, a large-scale crisis has been in the making in Sri Lanka, and Jubilee Scotland is worried that the institutional response remains insufficient to support the needs of the main victims: the citizens, especially the poorest.
Right now, the country is going through its worst financial crisis since its independence, in 1948. This situation is the result of the combination of several factors: decades of economic mismanagement, recent policy errors, and the massive hit of COVID-19 on the tourism sector and on remittances. The Sri Lankan government defaulted on its debt in April 2022, when it suspended payment on $12 billion, as it had run out of foreign currency.
The government’s bankruptcy also means that it became unable to pay for essential imports, such as food, fertiliser, medicines and fuel. Lines for gasoline can reach several kilometers, and civil servants have been asked to work from home to save fuel. Inflation reached 54.6% in June, and can be expected to get as high as 60%. At the moment, Sri Lanka would need at least $6 billion to stabilise its finances. Having no other choice than to print money to pay government salaries, there is a risk of even higher inflation. The government is planning to hold a conference with friendly nations, such as Japan or China, to try and find loans to keep afloat.
Talks are in progress with the IMF as well, and there reportedly has been “significant progress towards an aid program”. This would mean restoring debt sustainability as well as financing assurances from country’s creditors, but also tax reforms. But this process will be slow, and right now, a humanitarian crisis and political unrest are developing in the country.
However, just like in Zambia, a huge part (47%!) of Sri Lanka’s debt is owned by private creditors such as Blackrock, Ashmore, or Hamilton Reserve Bank. The latter has sued Sri Lanka in the state of New York for the full payment of principal and interest, as it considers that the default has been orchestrated by the government.
It is key that private lenders take part in debt restructuring to ensure that debt is reduced to a sustainable level and to prevent a new build-up of unsustainable debt. Yet, there’s no mechanism to force them to come to the table. Their refusal puts all the restructuring effort in jeopardy, and the citizens are paying the price.
Jubilee Scotland is extremely concerned about this situation. We have already partnered with allies to hold Blackrock accountable about Zambia, and more broadly to draw attention to the responsibility of the private sector in the debt crisis.
Private lenders need to #CancelTheDebt urgently!