Left behind by debt restructuring: There was an alternative

The new Government’s entire analysis changed once in office, and the chosen course of action seems to be the passing of the debt service burden to the working people

A few weeks ago, on 11 February 2025, an intersessional session of the UN Human Rights Council (UNHRC) held a conference on the reform of the international debt architecture. It was just days before the maiden Budget of this Government was read out in Parliament, and it was immediately clear why this effort by the UN was most decidedly relevant to us. 

The concept note of the conference says that over 40% of the world’s people (3 billion people) are in the same boat as us, where more is spent on debt interest payments than on health and education. The already high but also growing cost of external debt which it says directly impacts public budgets and therefore on human rights, is already a brutal reality for us.

The discussion at the session focused on (a) supporting developing countries in achieving long-term debt sustainability through coordinated policies on debt financing, relief, and restructuring to reduce debt distress (SDG target 17.4) and (b) developing measurements of progress on sustainable development that complement gross domestic product (SDG target 17.19).

The name of the conference, “Leaving no one behind: the role of human rights in reforming the sovereign debt architecture and going beyond GDP”, would come as an impossible aspiration to citizens of this country who wouldn’t have thought that human rights had anything whatsoever to do with debt restructuring, given the current discourse of the Government. They are beginning to discover they are the first to be ‘left behind’, as the impact of the rushed adoption by the new Government of the previous Government’s debt-restructuring deal (along with its finance officials) begins to bite. 

This administration’s pre-election discourse in Opposition on sovereign debt, and criticisms of the restructuring efforts of the previous Government together with the promise of an alternative course of action, was manifestly a reason for their election to office. A loudly proclaimed re-negotiation on the IMF’s DSA (which was seen as flawed by experts), was one of the first casualties of their assumption of State power. 

The NPP’s original critique tended to echo that of an increasingly concerned international community including UN agencies of the global sovereign debt crisis facing many countries in debt distress. The UN had presented several reports and had passed UN resolutions both in New York (UNGA) and Geneva (UNHRC) presenting guiding principles on debt and debt restructuring, offering expertise, support and solidarity for a human rights approach to debt restructuring with recommendations of specific mechanisms which included debt standstills.

The international community was urging a “Human Rights Economy”, a concept developed by the HR High Commissioner’s Office according to Bob Rae, President of the ECOSOC who delivered a special message at the start of the intersessional conference in Geneva, who also insisted in his speech that debt servicing should not jeopardise a state’s human rights obligations and that debt frameworks must be transparent. The view expressed in Colombo by several commentators was that this administration had a moral obligation to honour its promises to its voters to at least try its best to reduce the impact of debt servicing on the people. 

Instead, the new Government’s entire analysis changed once in office, and the chosen course of action seems to be the passing of the debt service burden to the working people.

The UNHRC Geneva panel of speakers on 11 Feb included Dr. Ahilan Kadirgamar who was asked to comment on Sri Lanka’s experience. He included the origin story of the debt crisis as being located in the 2008 “supply side push” towards the global south by the excess of liquidity awash in the global north. He said that Sri Lanka was handling the crisis through a flawed process of debt restructuring and a flawed DSA. He asserted that the economy had contracted by 20% and the Domestic Debt Restructure (DDA) insisted on by the external creditors resulted in a 50% cut of the working people’s retirement fund. 

Dr. Kadirgamar said that the mechanism of Macro Linked Bonds (MLB) was an unfair one, and that a default was likely at the end of the IMF programme. It is worrying that more and more independent economists are of this view. He told the conference that the entire burden of the debt restructure was squarely placed on the working people. 

He suggested that the difficult process of debt arbitration should not fall on the IMF which has a conflict of interest, and that another appropriate UN agency should act as arbiter. He suggested that a plurality of DSAs would serve the process better, with capacity offered to countries to participate in formulating them. He said geopolitical asset-grabbing by powerful states should not be seen as development financing, and that National Planning, Industrial Policies and Domestic Development Banks should form the triangular basis of growing out of the crisis. 

Other speakers spoke of the vicious debt cycles, unfair IMF surcharges, and reform of credit rating agencies (Africa is developing its own). The representative of South Africa said that as President of the G20, his country is currently looking at setting up a “Cost of Capital Commission” to understand the current global system in order to facilitate affordable capital for development finance. 

A new global financing framework

Further evidence of the increasing concern of the global community comes in the form of the 4th international conference on Financing for Development, due to take place in Seville, Spain, from 30 June to 3 July this year, to “put in place a renewed global financing framework”. The zero draft of the outcome document, to be signed by heads of states, speaks of “profound human suffering” and “growing systemic and in many cases, existential risks”.

The document has several phrases which reveal the environment in which our own debt restructuring was negotiated (not entirely efficiently, it would seem.) The leaders of countries declare that they “commit to reform the international financial architecture” and call for the sharing of risks and rewards fairly, for transparency and for clear accountability mechanisms. They also acknowledge that “lenders have a responsibility to lend in a way that does not undermine a country’s debt sustainability”. 

They propose inter alia, a working group to develop principles on responsible sovereign lending and borrowing including repayment and restructuring, and a commitment to “enhanced parliamentary oversight to increase transparency and accountability over domestic and external debt issuance and use”. They suggest the creation of a global debt data registry to achieve debt transparency of both countries and private creditors, and call on private creditors to include a clause on debt service standstills during times of crisis and debt service suspension during negotiations. 

This discourse on debt crises and restructure at the level of heads of states and high officials of the UN agencies leaves little doubt that it was already recognised that the international financial architecture needed reforming and that the methods being practiced were hardly acceptable.

It is in this global atmosphere – and despite it – that Sri Lanka’s new administration rushed to sign agreements with both the IMF and the private creditors which don’t seem to have taken advantage of the current urgent global concerns regarding the less than satisfactory terms on which they were generally being negotiated. 

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Left behind...

Since signing the agreements, despite being one of the highest interest paying countries, we have heard no official criticism of the global financial architecture or its reform and our urgent need for such change. All conversations on the flawed DSA have fallen silent. No expressions of regret about the burden placed on the working people as a result of the agreements have been articulated. No more calls for transparency of the restructuring process. No calls for joint actions by debtor nations suffering under unfair restructuring arrangements. The impression instead, is of general satisfaction at a job well done, leaving the creditors celebrating in London, the authorities applauding each other in Colombo, and Ministers aggressively petulant in parliament at the very suggestion that they could have, and should have done better by the people. 

What happened to the many TV appearances where these matters were discussed at length, some even moderated by well-known JVP personalities, now Ministers, in the new administration? What happened to the outrage of the professionals, professors, economists, now part of this government, who predicted dire consequences for the people of the on-going negotiations by the previous administration? Is everything OK now and was the fear-mongering only electoral, the agreements always spot-on? 

How then did the main Opposition party the SJB convince the IMF that they had a case for renegotiation of the IMF agreement? That case must have had a solid basis to earn the assent of the chief local representative of the institution. 

How is it that not a word of criticism passes the lips of any of the Ministers regarding the terms of those agreements? 

What if their own pre-election fears were to come to pass, and Sri Lanka tends towards multiple defaults, as some experts predict? In such a scenario, is this administration, which has stayed silent on the systemic factors which are being robustly discussed internationally, likely to use the global zeitgeist to explore all options available to reduce the burden on the people with the support and solidarity of the international community, grow a spine, and get us a better deal? Or would they take the path of least resistance and continue to dump the consequences on the people?

The Zero Draft of the outcome document of the UN conference on Financing for development (June 2025) which starts with “We the heads of States and High Officials…” explicitly states that the “existing international financial architecture, financing policies, and actions have fallen short.” 

Sri Lanka is well placed to endorse this. Will our President attend the Seville Conference and support the outcome document calling for radical reform of the global debt architecture, having presented an honest account of our debt crisis and find a fairer way out of it for our people?