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Sri Lanka’s Dangerous Domestic Debt Restructuring

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by JAYATI GHOSH and KANCHANA N. RUWANPURA

More than a year after the mass protest movement known as the Aragalaya ousted SriLanka’s President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, Sri Lankans have once again taken to the streets. The impetus for the resurgence of public discontent is the recent bailout agreement between the International Monetary Fund and President Ranil Wickremesinghe’s government.

The deal, which aims to address the country’s ongoing balance-of-payments crisis, offers Sri Lanka less than $ 3 billion over four years – a tiny fraction of what the country needs to meet its debt-servicing requirements and just one-sixth of its foreign-exchange earnings, which amounted to roughly $18 billion in 2022. In exchange for this emergency loan, the IMF imposed a series of conditions that have significantly exacerbated Sri Lanka’s wage and cost-of-living crises.

The mandated shift to market exchange rates, in particular, immediately led to a sharp currency devaluation, causing imported fuel and food prices to skyrocket and contributing to a 165% increase in electricity tariffs between June 2022 and February 2023. As fiscal restraints were imposed, the economy continued to spiral down, with GDP shrinking by 7.8% in 2022 and 11.5% in the first quarter of 2023. This has had an adverse impact on employment, livelihoods, and the viability of small and medium-size enterprises. Consequently, real wages fell by30-50% in 2022 and have remained stagnant.

Despite paying lip service to the importance of combating corruption and curbing illicit financial flows, the IMF plan falls short of tackling these issues effectively. Although it includes a modest increase in corporate income taxes, it neglects the possibility of imposing wealth taxes. Moreover, its focus on highly regressive measures, such as nearly doubling the value-added tax to 15%, means that the bulk of additional revenues will be generated through indirect taxes that disproportionately affect ordinary people.

The current wave of protests is partly a reaction to the government’s decision to comply with the IMF’s demand to restructure both external and domestic debt. Instead of focusing on lowering the external debt to a sustainable level, however, the agreement aims to bring down total debt, thereby reducing the haircut imposed on foreign creditors to just 30%.This has exacerbated the crisis and is difficult to justify.

In countries that do not issue global reserve currencies, there is a clear distinction between domestic and external debt. Governments can and do service domestic debt using their own currencies, the supply of which is controlled by their central banks. By contrast, foreign currency-denominated debt necessitates either foreign-exchange earnings or new borrowing.|

Sri Lanka’s crisis is largely the result of the country’s inability to service its external debt due to insufficient foreign-currency reserves. Since 2016, the government has preferred to take on new international loans, primarily from private lenders, to repay its foreign creditors, including bilateral and multilateral lenders. In early 2022, the government chose to default on its foreign loans rather than explore alternative solutions. But restructuring domestic debt in an economy already in decline is both painful and unnecessary.

Sri Lanka’s domestic debt is held by various entities, including the central bank, commercial banks, and pension funds. Given that the country’s banking system is already severely weakened, pension funds will almost certainly bear the brunt of the expected adjustment. This will have a significant impact on the retirement savings of workers who have already been hit by massive price increases. By reducing the interest rates on sovereign bonds held by Sri Lanka’s largest pension funds from more than 20% to 12%, and then to 9% from 2025 until maturity, the government aims to reduce its interest burden by 0.5 percentage points of GDP annually.

Recent estimates by Ahilan Kadirgamar suggest that this will result in a 30% decline in the value of retirement funds a decade from now. Moreover, these pension funds, often holding the only financial assets of working people, will be subject to a 30% tax on their returns – higher than the tax rate applied to many in the corporate sector. Many workers whose life savings are invested in these retirement funds earn wage incomes well below the minimum taxable rate. This includes workers who face numerous intersecting deprivations stemming from gender and ethnic discrimination, such as women employed in the garment industry and tea-plantation workers, especially those from minority Tamil groups. These groups have already experienced an alarming decline in living standards.

Nearly 56% of Sri Lanka’s 22.2 million people are now grappling with multidimensional vulnerabilities, with women and girls being the hardest hit. Official estimates suggest that roughly 43% of children under the age of five suffer from malnutrition, as do a growing number of pregnant and lactating women. By targeting the meager pension funds of Sri Lanka’s wage workers, the government’s domestic debt restructuring plan is likely to exacerbate existing class, gender, and ethnic inequalities. With their hard-earned savings eroded, poverty-level workers will be pushed further into destitution.

Meanwhile, the adjustment process relies heavily on the unpaid labor of women who continue to provide care in the face of austerity and diminishing social services. The plight of working-class Sri Lankan women underscores the clearly gendered effects of the county’s debt crises and the government’s approach to tackling them. A genuine resolution to Sri Lanka’s prolonged economic crisis would require a dramatic change in strategy. To bring about a robust economic recovery, the government and the IMF must focus on improving the lives of working people rather than imposing on them the burden of adjustment.

(Jayati Ghosh, Professor of Economics at the University of Massachusetts Amherst, is a member of the Club of Rome’s Transformational Economics Commission.

Kanchana N. Ruwanpura

, Professor of Development Geography at the University of Gothenburg, is a member of the coordinating collective of the virtual and voluntary initiative Institute of Political Economy in Sri Lanka)



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Features

New US sanctions on ICC, a fillip to worldwide political repression

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The International Criminal Court in session. UN Photo/Eskinder Debebe

US Secretary of State Marco Rubio’s warning to the International Criminal Court (ICC) was stark: ‘Either the ICC will end its threats, or we will end the ICC.’ It followed US central administration accusations that the court was unfairly targeting Americans on the basis of trumped-up war crimes charges.

However, a new plethora of sanctions has been clamped on the ICC by the US, which in turn has spurred accusations by sections of the world that the latter has unleashed an ‘assault’ on the international legal order.

What some of the sanctions would mean for the ICC was outlined by Rubio: ‘We will ban transactions with this rogue court, cutting off their resources and crippling their ability to operate against us.’

The ICC has shown consistency of purpose over the years. Despite some operational constraints it has indicted a large number of political strongmen from around the world, accused of war crimes and other governance excesses that come under its purview. Two such recent figures are: Russian President Vladimir Putin and Israeli Prime Minister Benjamin Netanyahu.

Rather than enjoy a mere nominal presence in the world community, the ICC has proved its effectiveness by detaining and bringing to justice scores of VIP politicians and others of their ilk who have been found guilty of human rights abuses and kindred excesses that come within the terms of reference of the ICC.

Accordingly, the international justice system would be stymied considerably as a result of the ICC being dis-empowered, particularly financially. Needless to say, potential and real perpetrators of the species of crime coming under the jurisdiction of the ICC would stand to gain most from such anarchic tendencies. That is, political repression globally would be enabled to enjoy a new lease of life.

A detailing of the types of crime coming under the purview of the ICC provides an idea of what it would cost the international community if the ICC’s operations are gravely hampered. They are mainly: genocide, war crimes, crimes against humanity and the crime of aggression.

That is, the part of the world to be worst affected would be the global South, since the latter is awash with the mentioned crimes. Needless to say, a chronically-disaffected South will sooner rather than later undermine the well being of the world dangerously. The world is already being put through these paces.

At the time of writing, ‘illegal migrants’ from the South, for example, are aggravating many a Western economy’s woes, besides creating for them acute law and order issues. The fact that these migrants’ presence goes on to become a virtual test of the migrant receiving states’ ability to forge domestic social inclusion in the face of jingoistic protests by mainly white supremacist groups is evidence of the latter. As is known, the US, to take just one example, has been up against this crisis for quite a while.

Accordingly, it will be in the best interests of the West if ‘illegal’ migrant arrivals on their shores are stemmed. If the socio-political and economic problems assailing the South are effectively managed through North-South collaborative, ‘trouble-shooting’ efforts the causes leading to ‘illegal’ migration and connected issues could be resolved at source as it were. For, it is the aggravation of the South’s material questions that lays the basis for the emergence of repressive and anti-democratic regimes in the hemisphere.

Until such time that the aforementioned issues in North-South relations are visited afresh and addressed urgently, a vibrantly functioning ICC would be needed. For, the latter would prove a deterrent to Southern political and military strongmen, highly prone to power abuse and like excesses, from coming into being in the wake of the South’s chronic material woes and the wars and conflicts that result from them.

It stands to reason then that the US would be acting in its own interests by enabling the ICC to perpetuate its mandate without hindrance. For a crop of issues that impinges negatively on internal law and order would be defused.

Meanwhile, there needs to be a meeting of minds among the rest of the West to put back in place a North-South dialogue process aimed at reducing some of the economic pressures that are weighing on the South.

Since economics usually drives politics it will be in the interests of the world community to scrutinizingly re-visit North-South issues of the past and put in place economic relief packages for Southern publics that would enable them to tide over their material hardships rather than permit the latter to aggravate into social disaffection and eventually armed militancy. It is the latter juncture that paves the way for the emergence of authoritarian rulers in the South who then go on to be a blight on their publics.

Accordingly, the Southern-based global development thinking of the past that envisaged a more equitable world economic order needs to be seen as an urgent need. That is, NAM’s international development paradigms need to be resuscitated to the extent possible.

It is unlikely that rightist governments of the West, such as the current Republican administration in the US, would find these projects feasible, but democratic states of Europe, led by perhaps the UK, are likely to think otherwise. For it would not be beneficial for the democratic world to be having on their hands repressive governments in the South who would be gravitating towards the major military and economic actors of the South, such as Iran and North Korea, who tend to be in constant power struggles with the West.

However, until such time that the mentioned, pro-people initiatives are given serious thought the ICC would need to be enabled by the international community to be in place comfortably and carry on with its mandate of bringing repressive rulers to book. Besides the ICC should pave the way for the peoples of the developing world to enjoy some substantial respite from the political repression and even terror which tend to be their lot.

Meanwhile, the wars of West Asia are relentlessly aggravating the economic hardships of people everywhere, driving the point home to enlightened sections that there is no alternative to peacemaking. A challenge is to convert the US under President Trump to this line of thinking.

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Clear, soft and shine-free skin

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This week, I give you five simple, time-tested homemade remedies that help reduce the appearance of blemishes, control excess shine and leave your skin feeling softer and smoother.

The Honey and Lemon Brightening Dab:

For stubborn blemish marks, this is a classic. Mix one teaspoon of pure bee honey with three to four drops of fresh lemon juice. Apply gently, only on the affected spots, and leave for 10 minutes before rinsing with lukewarm water. While honey soothes and softens, lemon helps to brighten naturally. Use twice a week in the evening.

Besan and Rose Water Oil-Control Pack:

An ideal remedy to combat shine, especially on the T-zone. Take two teaspoons of besan (gram flour) and mix with sufficient rose water to form a smooth paste. Add a pinch of turmeric for its antiseptic goodness. Apply evenly, keep for 15 minutes and wash off. It absorbs excess oil without over-drying, leaving a beautiful matte finish.

Aloe Vera and Cucumber Ice Soother:

Blend fresh aloe vera gel with the juice of a grated cucumber and freeze the mixture in an ice tray. Each morning, wrap one cube in a soft muslin cloth and gently rub over a cleansed face for 30 seconds. It calms, tightens pores and imparts a baby-soft smoothness.

Oatmeal and Curd Gentle Polish:

Roughness and old blemish marks need gentle exfoliation. Combine one tablespoon of finely powdered oatmeal with one tablespoon of fresh curd (yoghurt). Massage very gently, in circular motions, for one minute, leave for five minutes and rinse. It removes dead cells and unveils softer, clearer skin.

 Multani Mitti and Green Tea Magic Mask:

Brew some green tea and allow it to cool completely. Mix one and a half teaspoons of Multani Mitti (Fuller’s Earth) with the tea water to make a fine paste. Apply for 10 to 12 minutes – do not let it dry and crack completely – and wash off. It draws out impurities, fades blemishes and bestows a fresh, shine-free glow.

A Gentle Reminder:

As with any natural remedy, always do a patch test on your inner arm first. For those with oily or combination skin, avoid heavy coconut oil application and harsh scrubbing, as they tend to aggravate shine and blemishes.

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Compete, shine and be discovered at WCOPA 2027

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Dream of performing on a world stage? Well, here is your unique, golden opportunity!

The World Championships of Performing Arts (WCOPA) — the one and only official “Talent Olympics” — is the world’s premier global platform for aspiring singers, dancers, actors, models, instrumentalists, etc., to compete, shine and be discovered!

And, yes, this world stage is open to YOU, Sri Lankans living in Sri Lanka and overseas!

Held annually in glittering Las Vegas, WCOPA brings together over 70 countries, all competing for Gold, Silver and Bronze Medals, just like the traditional Olympics.

Lakisha Bernard: Will represent Team Sri Lanka at WCOPA 2027

Outstanding performers vie for the coveted titles of Junior and Senior Grand Champion Performer of the World, with winners and standout participants awarded over $500,000 in scholarships, cash awards and prizes to catapult their education and careers!

Sri Lanka is already making waves! At WCOPA 2026, Natharie Wickramasinghe, representing Team Sri Lanka, made the nation proud by winning a Bronze Medal in the Ethnic/Folklore Dance category!

Lakisha: Accomplished freelance Model and Fashion Design graduate

Recruitment for this prestigious competition is handled through a system of scouts and licensed National Directors — and this is where our very own Chris Rajendra, now based in Las Vegas, and National Director for Team Sri Lanka, comes into the scene.

If you are a singer, dancer, actor, model, instrumentalist — if you have talent burning inside you — contact Chris Rajendra today for registration and, who knows, you may find yourself in Las Vegas, and proudly draped in the Sri Lankan flag, at WCOPA 2027!

The contact address is: Chris Rajendra, wcopa.nationaldirector.sl@gmail.com

or chris.rajendra@gmail.com

Meanwhile, a star is born for 2027, in the form of Lakisha Bernard who is all set to represent Team Sri Lanka at WCOPA 2027.

Originally hailing from the sun-drenched coastal city of Colombo and now carving out her creative career in Canada, 22-year-old Lakisha is stepping into the international spotlight.

This accomplished freelance Model and Fashion Design graduate has officially been appointed as the Team Sri Lanka Promoter for Canada as she prepares to represent Team Sri Lanka at WCOPA in Las Vegas.

Lakisha brings a unique blend of high-fashion sensibility, captivating camera presence and expert garment design to the Team.

Having built her career, from local college shoots to high-glamour concepts, Lakisha’s inspiring journey embodies the true spirit of cultural bridge-building and creative resilience, bringing immense pride and recognition to Sri Lanka on the global stage.

WCOPA 2027 will be held at the legendary Westgate Hotel & Casino, Las Vegas, from 12th to 20th July – the very same iconic arena where the late, great Elvis Presley himself performed!

Your moment is now. Your stage is Las Vegas, so hurry and contact Chris Rajendra.

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