Sri Lanka is navigating one of the most difficult economic recoveries in its modern history. The 2022 financial collapse triggered by years of reckless borrowing, weak fiscal discipline, and external shocks unleashed a wave of political and social upheaval.
Mass protests under the banner of Aragalaya demanded accountability, economic justice, and an end to entrenched corruption, ultimately forcing President Gotabaya Rajapaksa to resign. But his successor, Ranil Wickremesinghe, steered the country back toward IMF support rather than fresh elections.
In 2023, Colombo secured a $3 billion bailout under the IMF’s Extended Fund Facility (EFF), later unlocking a second tranche through a debt restructuring agreement with key creditors including China, India, and Japan. By late 2024, voters broke with the old order, electing Anura Kumara Dissanayake on a progressive mandate. Yet his administration remains constrained by IMF terms and legacy deals inherited from previous governments.
Austerity’s Human Toll
International institutions and financial commentators have celebrated Sri Lanka’s “17th IMF program” as a stabilizing force. But the human cost of this so-called recovery is staggering.
The structural reforms demanded by creditors have prioritized privatization, fiscal tightening, and central bank “independence” often at the expense of public welfare. Measures have included:
- Freezing public sector recruitment
- Delaying rural infrastructure in transport and irrigation
- Slashing subsidies and raising energy prices
- Increasing taxes while inflation erodes real incomes
- Burdening workers’ retirement savings, especially through the Employees Provident Fund (EPF)
As a result, millions are struggling. Civil society groups estimate that 6.3 million people are now skipping meals, with more than 65,000 facing severe food insecurity. Public health funding for 2025 stands at just 1.5% of GDP a fraction of what the state pays annually in interest on public debt.
President Dissanayake has tried to soften the blow, reinstating some subsidies for farming and fishing. But high fuel costs, climate shocks, and expensive chemical inputs continue to push rural producers into crisis.
A Global South Debt Trap
Sri Lanka’s struggle reflects a wider debt emergency across the Global South. According to the UN Conference on Trade and Development (UNCTAD), half the world’s population about 3.3 billion people live in countries that now spend more on interest payments than on health or education.
In 2024 alone, developing nations paid $921 billion in interest, with Africa among the hardest hit. Because poorer countries are forced to borrow at rates far higher than wealthy nations, they remain locked in cycles of dependency. Existing debt relief measures, UNCTAD warns, are piecemeal and skewed toward creditors.
Calls are growing for a fair, permanent, and transparent global debt resolution system one that prioritises development, sovereignty, and justice rather than creditors’ profits.
Building Alternatives
In September, Sri Lanka will host the 3rd Nyeleni Global Forum for Food Sovereignty in Kandy. More than 500 delegates from farmers’ movements and Indigenous communities to unions, researchers, and policy thinkers are expected to gather. The forum will focus on how debt undermines rights to food, health, education, and land, while strategising grassroots alternatives.
Instead of leaving recovery to technocrats and financiers, participants aim to connect local struggles from resisting land grabs to fighting for living wages with global campaigns demanding debt cancellation, climate reparations, and a restructured financial system.
Toward a Just Recovery
For Sri Lanka, and for much of the Global South, recovery cannot be measured by IMF compliance or fiscal surplus targets. What is urgently needed is the reclaiming of public resources for social investment, democratic control over debt governance, and a renewed commitment to dignity over austerity.
The challenge is immense, but so is the momentum for change. As Sri Lanka’s experience shows, the true restructuring the world needs is not just economic, it is political, social, and deeply human.
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Sources: Pakistan News Beat Agency!
FAQs
- What triggered Sri Lanka’s 2022 economic collapse?
Unsustainable borrowing, weak fiscal management, external shocks (including commodity price spikes), and loss of foreign reserves led to a balance-of-payments crisis and default. - What is the IMF program Sri Lanka is under?
Sri Lanka entered a $3B Extended Fund Facility (EFF) arrangement that ties disbursements to fiscal, monetary, and structural reforms. - Why do critics say the “recovery” has a human cost?
Austerity measures—tax hikes, subsidy cuts, higher energy prices, and real income erosion—have increased hardship, particularly for low-income and rural communities. - How did the Aragalaya movement influence politics?
The mass protests demanded accountability and forced the resignation of President Gotabaya Rajapaksa, reshaping the political landscape. - What changes concern workers about pensions?
Domestic Debt Optimization measures affecting the Employees Provident Fund (EPF) raised fears about lower retirement returns and reduced security. - What services are being squeezed by austerity?
Public hiring freezes and delayed rural infrastructure coincide with stagnant funding for health and education despite rising costs. - What steps has the new administration taken to ease pressure?
President Anura Kumara Dissanayake has instructed the treasury to reinstate some subsidies for agriculture and fisheries; however, fuel and input costs remain high. - How does Sri Lanka’s crisis reflect a broader Global South debt problem?
Many developing countries spend more on interest than on health or education, facing high borrowing costs and inadequate debt-relief mechanisms. - What alternatives are being discussed internationally?
Movements advocate a fair, permanent debt resolution system, debt cancellation where needed, and linking economic justice with climate reparations. - What is the Nyeleni Global Forum and why does it matter here?
It’s a global gathering on food sovereignty; this year’s forum in Sri Lanka spotlights how debt undermines rights to food, health, education, and land—and builds grassroots strategies.
