Experts say Sri Lanka’s debt crisis is a global humanitarian and political problem
By Olivia Lewis
Sri Lanka has defaulted on massive debt – more than $56 billion, according to the World Bank – leaving many to struggle without fuel, food and medicine.
It was the South Asian country’s first blemish since becoming an independent country in 1948. The result? A growing political and humanitarian crisis. Academic experts say Sri Lanka is not alone: several other countries are in a similar and dire financial situation.
In the case of Sri Lanka, “this is clearly a humanitarian issue and not just an economic one,” said John Ciorciari, director of the International Policy Center and Weiser Diplomacy Center at the University of Michigan. Many people are left without essential food or medicine.
After weeks of planes on the ground, Direct Relief has several expeditions underway to support the country’s medical system, including the insulin needs of people with diabetes in the country. The organization was able to ship 22 boxes of insulin and insulin delivery devices to 11 hospitals and health facilities in Sri Lanka in August. The doses are expected to meet the health needs of 212 children and young adults with type I diabetes in Sri Lanka. Just over 11% of Sri Lankan adults between the ages of 20 and 79 have been diagnosed with type I diabetes.
A second shipment of insulin has also arrived in the country and is expected to be delivered to 14 health facilities next week. This shipment contains enough insulin and insulin delivery devices to treat 400 children with type 1 diabetes.
Ciorciari, also associate dean for research and policy engagement and professor of public policy at the Ford School, said Sri Lanka depends on imports from other countries. He said the country’s default on international loans will hurt its reputation and its ability to work with other countries in the future. Sri Lanka’s fiscal reputation will be tainted at a particularly problematic time: According to Ciorciari, the countries are recovering from the coronavirus pandemic and the ongoing war in Ukraine, which means there are fewer resources for everyone .
These events have already affected Sri Lankans. In 2018, Sri Lanka earned over $5 billion from tourism. Those revenues fell to $1 billion in 2020, according to the World Bank, as travel was suspended during the coronavirus pandemic. Now, six months into the war in Ukraine, a global food shortage is also hitting Sri Lankans.
The Michigan professor said Sri Lanka’s situation deserved a strong international response, especially since many loans came with unrealistic repayment strategies when signed. Pressure has intensified on China to restructure some of Sri Lanka’s loans and Japan recently asked Western creditors to come together to consolidate loans, according to Reuters.
Now, several other countries are likely to default on their debts in the coming months. This is dangerous for countries that depend on imports to feed, care for and sustain the livelihoods of their people.
Lebanon, Russia and Zambia have already defaulted on their international debts this year.
Lebanon defaulted on its international debts and the country’s currency lost 90% of its value. More than half of Lebanese households now live in poverty. The International Monetary Fund has deployed hundreds of millions of dollars to support Lebanon and has proposed several policy measures to strengthen its government.
Russia’s default is largely a response to sanctions imposed by Western countries after the Russian president invaded Ukraine and the country is expected to continue losing access to global investors. Zambia is also over-indebted and the country is restructuring its debt with China and France.
Argentina, Ecuador, Egypt, Tunisia and Ukraine are set to default on foreign currency bonds and loans.
“Non-payment is obviously extremely costly for the country’s reputation,” Ciorciari said.
As the government struggles to calculate debt repayment, Sri Lanka’s 22 million people bear the brunt of the lack of funds. Imports were prevented from entering the country and fuel shortages also prevented people from leaving. Medical supplies are harder to come by, and government-funded support for drugs has declined, leaving many people without necessary drugs like the old government-sponsored insulin programs.
Neil DeVotta, professor of politics and international affairs at Wake Forest University, said the default is not surprising, given the country has had long-running budget deficits since independence.
DeVotta, who is an expert on South Asian politics, said he sees an economic and political crisis happening at the same time, given the misuse of funds by Sri Lanka’s political elites and the prioritization of infrastructure lavish, which the country cannot afford. He said millions of people are expected to fall into poverty due to ongoing debt.
“The continuing economic crisis has left people queuing for days for essentials like cooking gas, kerosene, gasoline, sugar, powdered milk and medicine,” DeVotta wrote in an online trial this summer.
DeVotta said Sri Lanka has prioritized and exceeded social policies that support literacy and health care. The lack of foreign currency has inspired protesters to storm government agencies and homes in Sri Lanka. Given the country’s current debt, the number of beneficiaries of these programs is likely to be reduced and the affordability of health care is likely to decline.
International organizations such as the International Monetary Fund, Paris Club, USAID and the World Bank are aware of Sri Lanka’s debt crisis but have no plans to expand new investments. The World Bank said in May that it did not plan to offer new financing but was reallocating resources to help vulnerable households.
Countries like China are also urged to consider restructuring high-interest loan repayments as they have done for Zambia. However, the country has not confirmed that any changes will be made.
Given that other countries are likely to default on their debt in the coming months, DeVotta said he hopes countries around the world will agree to take a “haircut” while renegotiating the terms of the deals. that would be better for society as a whole.