The G20 includes Sri Lanka’s top lenders and influential powers. It has to do more than sweet talk.
by Sanchita Ann Buster
Amnesty International Global Research and Policy Advisor
In February, G20 finance ministers met to discuss challenges facing the global economy. It is a missed opportunity to help Sri Lanka, a country on the front lines of the debt crisis that has engulfed dozens of countries around the world in recent years.
Disappointingly, the final Chair’s summary and outcome document only pay lip service to alleviating the challenges facing the people of Sri Lanka. While it recognized the global “urgency to address debt vulnerabilities” and “looked forward to a swift resolution to Sri Lanka’s debt situation,” it made no specific commitments or took any action.
The G20 countries include Sri Lanka’s major bilateral creditors, including China, India, Japan and South Korea; as well as influential members of multilateral creditor organizations including the US and European countries. If this group cooperates effectively, it can provide Sri Lanka with debt relief and strengthen the protection of people’s economic and social rights in times of crisis.
Because while the news cycle may have passed, the economic crisis in Sri Lanka is still raging and having a devastating impact on people. High inflation and limited social protection, combined with limited access to essentials such as food and healthcare, are taking a heavy toll on their lives and their rights.
For example, one in three households will be food insecure by December 2022, according to the World Food Programme. The outlook for 2023 is not rosy either: a quarter of the population is expected to remain poor and, according to the World Bank, a significant economic contraction is possible.
Sri Lanka’s debt burden affects the government’s ability to protect human rights. The public debt-to-GDP ratio rose from 93.6% at the end of 2019 to 114% at the end of 2021.
Even before the economic crisis grabbed international headlines, Sri Lanka’s debt servicing spending was a global outlier. In 2020, before the latest crisis, an incredible 71.4% of government revenue was spent on interest payments alone, compared to a global average of 6% and a regional average of 21.1%.
Interest payments are the largest category of government spending, and much of the new government borrowing is simply paying interest on Sri Lanka’s previous loans.
Servicing these debts reduces the government’s ability to spend in areas such as health, education, and social protection, which directly affect people’s well-being. A survey this month found that half of Sri Lankan families have been forced to cut back on how much they feed their children.
Sri Lanka must be lifted out of the debt trap and the vicious circle that erodes the human rights of too many of the island’s 22 million people must be broken.
The Sri Lankan government is currently engaged in complex debt negotiations, which are crucial to securing financial support from the International Monetary Fund. The IMF reached a staff-level agreement with the government last year, offering about $2.9 billion in loans. However, the terms of the IMF agreement require Sri Lankan creditors to provide adequate guarantees on debt restructuring and relief before the loan is finalized and the funds disbursed.
While the IMF financing may be why Sri Lanka’s debt is in the news today, creditors should focus on addressing the debt so that economic and social rights can be better secured. Past IMF programs included conditions that had an adverse impact on human rights, such as cuts in public spending and other austerity measures. Workers in Sri Lanka recently went on strike against government measures, such as tax increases, to allegedly secure IMF financing.
Sri Lanka’s debt negotiations are complicated for several reasons, including the range of parties involved. Nearly half of Sri Lanka’s total external debt is in bonds on the open market, some held by private entities such as hedge funds. One of these private creditors is already suing the Sri Lankan government in U.S. courts to repay the debt. Then there are bilateral creditors, with some debt also held by multilateral institutions such as the Asian Development Bank and the World Bank Group.
While those talks appear to have made some progress in recent weeks, no resolution appears to be in sight. The lack of transparency in how the negotiations are being conducted means it is not clear what the obstacles are and how long the process might take.
How these negotiations are conducted is important. The fact that Sri Lanka’s existing debt repayments are so onerous raises questions about how those agreements were struck in the first place. Transparency, participation and accountability are essential to ensure that the current crisis is not repeated.
Creditors in Sri Lanka cannot be guided solely by commercial or national interests. As Amnesty International’s report on the Sri Lanka economic crisis in October 2022 points out, international financial organizations, multilateral development banks and private companies have an obligation and responsibility to respect international human rights.
As these negotiations progress, debt restructuring and relief should enable Sri Lanka to service its foreign debt without compromising its ability to fulfill its human rights obligations and guarantee the economic and social rights of its people. All options for debt relief should be on the table, including debt cancellation if necessary.
Urgent, coordinated international action is key to ensuring that the Sri Lankan government can effectively respond to the crisis and protect people’s rights. It has been almost a year since Sri Lanka first defaulted on its debt and six months since the IMF staff-level agreement was reached.
With more G20 meetings scheduled this year, they must prioritize debt relief for Sri Lanka based on human rights standards. Postponing decisive action against Sri Lanka will only delay recovery and add to the suffering the people of that country are going through.
