Cancel Sri Lanka’s debt is the call for from the world’s leading economists and development experts, as they said some of the world’s most powerful hedge funds and other investors were holding up vital help to the crisis-hit Asian nation.
In a statement released by 182 leading experts, it is said that the big financial interests are a hurdle in delivering the much-assistance to the island nation after its $51 billion default last year and added that only debt cancellation offered any chance of recovery.
They said extensive debt cancellation was needed to give the economy a chance of recovery and that Sri Lanka would be a test case of the willingness of the international community to tackle a looming global debt crisis.
The group – including the Indian economist Jayati Ghosh, Thomas Piketty, the author of the bestselling book Capital, and Greece’s former finance minister Yannis Varoufakis – said private sector creditors such as investment companies and hedge funds were preventing a deal.
“Debt negotiations in Sri Lanka are now at a crucial stage,” the statement says. “All lenders – bilateral, multilateral, and private – must share the burden of restructuring, with assurance of additional financing in the near term.”
However, Sri Lanka own cannot ensure this on its own, they noted. “It requires much greater international support. Instead of geopolitical manoeuvring, all of Sri Lanka’s creditors must ensure debt cancellation sufficient to provide a way out of the current crisis,” the statement said.
Private creditors own almost 40 percent of Sri Lanka’s external debt stock, mostly in the form of international sovereign bonds, although the higher interest rates levied on the bonds mean they receive more than 50 percent of external debt payments.
“Such lenders charged a premium to lend to Sri Lanka to cover their risks, which accrued them massive profits and contributed to Sri Lanka’s first ever default in April 2022. Lenders who benefited from higher returns because of the ‘risk premium’ must be willing to take the consequences of that risk.”
Negotiations have been under way since an economic crisis forced the Sri Lankan government to default for the first time in the country’s history last spring.
A loan from the International Monetary Fund will only be provided once the Washington-based organisation is confident Sri Lanka’s debts are sustainable, but the 182 economists fear the tough stance adopted by private creditors will result in a poor deal for Colombo.
The campaign group Debt Justice said Sri Lanka was one of several countries which had defaulted on, or were seeking debt restructuring, since the Covid pandemic began.
Ghana became the latest country to suspend many of its external debt payments last month, following Lebanon, Suriname, Ukraine and Zambia.
The default move in Sri Lanka came while crippling shortages sparked mass street protests across the island. The agitations spanned months and ousted former President Gotabaya Rajapaksa in July 2022. President Ranil Wickremesinghe was elected in his place, through a Parliament vote.
In September 2022, Sri Lanka reached a staff-level agreement with the IMF for a provisional bailout package which was made contingent on adequate financing assurances from Sri Lanka’s creditors. His government has pinned its hopes on IMF support, mainly to qualify for more credit that it deems necessary for reviving its battered economy.
However, Sri Lanka missed the December deadline to obtain the IMF Board’s approval and is still in talks with creditors to obtain assurances. Central Bank of Sri Lanka Governor Nandalal Weerasinghe had said last month that Colombo had provided “all information possible” to its bilateral creditors” and was awaiting assurances from India and China.