Committee for the Abolition of Illegitimate Debt

The coronavirus pandemic and its cascading economic consequences pushed numerous countries into a debt crisis. This is nowhere more pronounced than in Sri Lanka, lingering in a debt trap since the beginning of this year. The country defaulted on its debt for the first time in its history as it struggled with its worst financial crisis in more than 70 years.
Since then, the country has witnessed mass protests against the worsening living conditions with opinions divided about the resolution of the crisis and the future of the country. While for ordinary people, the current situation in the island nation owes its lot to the “failure of governance” with the Rajapakse family which was at the helm of the nation as the face of this “failure”, the civil society is divided about the way forward.

Sri Lanka has recently obtained a staff-level agreement with the IMF for an Extended Fund Facility (EFF) of US$2.9 billion spread over four years. This comes after several months of negotiation by the Sri Lankan government which saw the bail-out as the only way to rescue the nation’s economy. While the experts, state managers, policy specialists, and media are unanimous in their pro-IMF position, this bailout comes at a cost. The beleaguered economy is mandated to significantly increase State revenues through revenue-based fiscal consolidation measures, that is to increase revenue while reducing expenditure in order to show a primary surplus of 2.3 per cent of GDP by 2025 from the projected -4.0 for this year.

In the meantime, the Sri Lankan opposition including members of the civil society remains divided over an IMF programme and responses to it. Their positions can be roughly classified into three broad categories:

• The IMF bailout is the only solution to rescue the economy.
• The terms of the bailout are harsh and therefore, GOSL needs to bargain better.
• No to IMF loans and repudiation of odious debts.

While a full-fledged debt crisis has engulfed the island nation, other countries in South Asia are not far behind. Factors contributing to the Sri Lankan crisis have also had a significant impact on Pakistan, whose economy faces similar challenges. According to reports, Pakistan has requested China to rollover its $6.3 billion debt that is maturing in the next eight months as part of its overall plan to arrange $34 billion in the current fiscal year to meet its debt and external trade-related obligations. Bangladesh is the third South Asian country to look forward to IMF loans, after Sri Lanka and Pakistan. While an IMF team is in the country to start negotiations, Bangladesh’s foreign currency reserves dipped to $35.98 billion - a steep drop from $48 billion in August last year and the lowest level in 28 months. While the Indian debt scenario is reportedly easier to sustain, the debt ratio is projected to be 84% of its GDP by the end of 2022, undoubtedly higher than many emerging economies.

According to the World Bank, the number of people who were forced into poverty due to COVID-19 has gone up sharply in South Asia with other regions. The region has witnessed a significant build-up of household debt. In Sri Lanka there have been many struggles around microfinance loans usually led by women. As per reports, the pandemic-induced financial stress and high inflation is pushing higher household debt in India, especially loans related to consumer durable credit card payments and loans against fixed deposits. the total household debt in India has risen dramatically from $8.6 billion in March 1998 to $392.9 billion in March 2021, the highest ever recorded. The debt grew dramatically from $335 billion in the year April 2020-March 2021, the sharpest ever spike of 17 percent in a year. The situation is similar in other countries of the region. The inflationary spiral and especially, the rise in food prices are pushing thousands and thousands across the region in debt and poverty. It is apprehended that private debt – both household and corporate – could hamper the region’s economic recovery.

In this context, the CADTM South Asia workshop to be held in Colombo from Friday 2^nd – Sunday 4^th December 2022 will primarily attempt to deal with the following issues:

• Deepening global debt crisis and its causes and consequences
• South Asian scenario of external and private (including household) debt
• Sri Lanka’s debt crisis and lessons from/for South Asia
• The IMF as lender of last resort
• What is Illegitimate Debt and What are Debt Audits?