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You are here: Home / The Issue / Country case studies / Sri Lanka

Sri Lanka

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Sri Lanka Factfile

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Sri Lanka is one of the most indebted countries in the global south and its debt stock doubled between 2000 and 2012 to US$22.66 billion. The debt was first created in the late 1970s and has grown rapidly. Now an estimated 25% of government revenue is spent on debt repayments and the IMF estimates that under financial stress, payments could reach 35% of national income in 2013. The government of Sri Lanka spends nearly the same amount on debt repayments as it does on healthcare, recently borrowing a further US$600 million just to cover the repayments and escalating interest. The deeply indebted country has not been considered for any debt relief as international institutions deem its debt to be ‘sustainable’.

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Further information

The role of International Financial Institutions

Some of the starkest impacts are observed when looking at the conditionalities and macroeconomic reforms imposed on the country alongside its loans. Sri Lanka’s currency, the rupee, has been devalued by over 16% since November 2011, causing economic hardship for Sri Lankan people. Austerity measures and trade liberalisation have been a conditionality of IMF loans. Resulting price hikes, particularly in energy costs, have hit the poorest Sri Lankan’s hardest, exacerbating inequality within the country.

Following the highly destructive tsunami in 2005, the Paris Club froze Sri Lanka’s debt repayments for one year but despite the UK government suggesting partial debt cancellation, payments resumed in full.

Human rights abuses and impunity

25 years of violent conflict between the Sinhalese and Tamil ethnic groups ended in 2009. The final months of the civil war led to the death of tens of thousands of civilians whilst countries around the world ignored the violent nature of the end of the conflict. The government state that they held a ‘zero civilian casualty’ operation but many, including the UN, have suggested that the government are guilty of serious violations of international humanitarian and human rights law, amounting to war crimes and crimes against humanity. This includes the killing of civilians, attacks on hospitals and denial of humanitarian assistance. Loans were extended to the government throughout this period and the Sri Lankan people are now paying back loans which were taken by a repressive past government.

Dodgy deals

UK Export Finance supported £80 million of loans in 2008 for the country to pay Mabey & Johnson, a British company, to build bridges in Sri Lanka. It had been alleged at the time that Mabey and Johnson were involved in corruption and in 2009 they were found guilty of bribing officials in Angola, Bangladesh, Ghana, Madagascar, Mozambique and Jamaica. In spite of these serious allegations, UK Export Finance went ahead with the plans illustrating the lack of ethical consideration behind their deals.

Current Situation

The consideration of Sri Lanka having a sustainable debt burden stands within a narrow understanding of what such sustainability is. Due to Sri Lanka’s place as a middle income country it is considered capable of repaying debts. However, this does not give the full picture for life for Sri Lankan’s and problems including malnutrition persist. Inequality is entrenched in Sri Lankan society and the high human cost of the tsunami and civil conflict continues to take its toll.

Discussion points

  • How would you define ‘sustainable’ debt?
  • If debt is cancelled as a result of a high impact natural disaster such as the tsunami, does this have implications for how to deal with debt repayments in contexts of high poverty?
  • The UK export finance supported loans for Mabey & Johnson to build bridges in Sri Lanka despite allegations of corruption and bribery. Should the UK government continue to fund companies in spite of their records in other countries?

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Jubilee Scotland is an independent coalition of organisations and local groups across Scotland who campaign for cancellation of the unjust and unpayable debts which are ruining the world’s poorest countries.

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