One of its longest-lasting economic recovery cycles is occurring in Sri Lanka. A toxic combination of unsustainable borrowing, poor fiscal management, and external shocks caused the nation’s financial collapse in 2022.
Aragalaya, a broad-based citizens’ movement that demands accountability, economic justice, and an end to political corruption, organized massive demonstrations.
Gotabaya Rajapaksa, the current president, resigned in the wake of the uprising. However, Ranil Wickremesinghe’s administration regained power after his resignation.
The Wickremesinghe administration negotiated $3 billion in support from the IMF in its New Extended Fund Facility (EFF) agreement in 2023, delaying calls for new elections. Sri Lanka also reached a debt restructuring agreement with a group of creditors, including China, India, and Japan, to unlock a second instalment of this bailout package later that year.
The new administration has since been confined by the IMF and the previous political establishment, despite the fact that the Sri Lankan people had elected a progressive government led by President Anura Kumara Dissanayake and with a historic mandate by September 2024.
The 17th IMF program, known as the 17th IMF program, has been frequently cited as a sign of stabilization, while praising the debt restructuring agreement and compliance with IMF requirements.
What about the human cost of this “recovery”?
Privatizing state-owned businesses is a part of the punitive structural adjustment process, including removing the Central Bank’s authority from state control, restricting the state’s borrowing capacity, and coordinating creditors’ interests with national development goals. Employees’ Pension Fund (EPF), specifically the Employees’ Provident Fund, are under the spotlight for its efforts to reduce domestic debt, raising concerns for salaried workers whose real incomes have already been reduced by high inflation and higher taxes.
In addition, funding for health and education has remained stagnant as the cost of these projects has increased, leading to delays or cancellations for significant rural infrastructure projects in transportation and irrigation. The reforms that were implemented to achieve macroeconomic stability, such as interest rate increases, tax adjustments, the elimination of subsidies, higher energy prices, and the deterioration of workers’ pensions, have demanded a lot of citizens.
Additionally, the IMF program has sparked neoliberal legal reforms that stifle the Central Bank’s ability to hold accountable for the public, restrain the government’s budgetary constraints, and promote the privatization of land, water, and seeds through agribusiness.
The Sri Lankan government has implemented extensive austerity measures to meet IMF objectives, most notably, the goal of a 2.3% primary budget surplus by 2025. If not from the poor’s money pots, where else will that surplus come from? Bankers may enjoy this austerity, but those who reside in rural areas and coastal villages are in fear and hardship. The debt restructuring program’s investor profit is prioritized over the public interest, reducing the fiscal space required to rebuild essential services.
According to civil society organizations, 6.3 million people skip meals right now, and at least 65, 600 are experiencing severe food shortages.
Anura Dissanayake, the newly elected president, has given the Treasury instructions to reinstitute subsidies for the agricultural and fishing sectors in a notable move. Although welcome, this might not suffice. Farmers report that fuel costs are still high and are a source of income for them.
Farmers are struggling with rising costs, climate catastrophes, and lower state support, many of whom are locked into chemical input-intensive production.
Sri Lanka’s 2025 public health funding accounts for only 1.5% of its GDP, which is five times the amount needed to pay public debt interest. This glaring disparity highlights the fiscal restrictions on basic social spending.
However, this is more than just a Sri Lankan tale.
It is a part of a larger global debt crisis that is causing the South’s public finances to be in crisis. International financial organizations like the IMF, World Bank, and Asian Development Bank (ADB) have been forced to give national policymaking authority to a large number of nations in Africa, Asia, Latin America, the Caribbean, the Pacific, and Central Europe.
According to a recent report from the United Nations Conference on Trade and Development (UNCTAD), half of the world’s population now lives in nations where they spend more on interest payments than on health or education. Development nations were among the hardest hit by interest payments in 2024 alone, accounting for a staggering $921 billion.
UNCTAD warns against the effects of rising global interest rates and a fundamentally unjust financial system, which are causing a cycle of dependency and underdevelopment.
Existing debt relief mechanisms are inadequate, ad hoc, fragmented, and overwhelmingly tilted in favor of creditors, despite the fact that developing countries routinely pay interest rates several times higher than those charged to wealthy nations. Global South governments are increasingly pressing for a permanent, transparent debt resolution mechanism with a focus on justice, development, and national sovereignty.
Global grassroots movements are also paying close attention to this issue.
More than 500 people from all over the world will gather in Kandy, Sri Lanka, for the third Nyeleni Global Forum for food sovereignty in September. Small-scale food producers, indigenous peoples, trade unions, researchers, and progressive policy think tanks will be present at the gathering. The global debt crisis and how it undermines fundamental rights to food, health, and land will be one of the main themes.
The forum is intended to provide alternatives charting space. Movements will devise strategies to establish grassroots power rather than relying solely on technocratic financial institutions or state-led negotiations.
They want to connect local struggles, such as those of farmers who oppose land grabs or those who organize for living wages, to global campaigns calling for the end of global debt, climate change, and the restructuring of the world financial system.
Those of us in the Global South are aware that fiscal targets and compliance checklists alone cannot lead to a just recovery. We demand that people’s dignity be prioritized above creditors’ profit margins, as well as the reclaiming of public space for social goods investment, and the democraticization of debt governance.
This may be the most urgent and necessary restructuring of all, for Sri Lanka and countless other African, Asian, and Latin American nations.
Source: Aljazeera
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