Can Sri Lanka escape foreign debt trap in autumn poll? Interview with Bimal Rathnatyake

With a much trumpeted foreign debt restructuring deal and Presidential elections planned this autumn, Liberation caught up with progressive former member of parliament Bimal Rathnatyake to find out about popular and political struggles for an exit from Sri Lanka’s long-standing crisis.

News that Sri Lanka has completed a restructuring of $5.8bn of debt owed to a group of creditor nations, including India, Japan and France was greeted cheerily by the global financial press. The country’s finance minister Shehan Semasinghe described it as a “significant milestone” in ending Sri Lanka’s debt crisis that erupted with disastrous consequences in 2022. But what are the implications of this deal for ordinary Sri Lankans – more austerity or a relief from it? 

Much needed external debt restructuring has not yet been finalized. Without detailed information it is difficult to assess whether outcome of negotiations would bring a debt relief to Sri Lanka or not. Bilateral debts roughly amount to USD 10 billion whereas outstanding ISBs [International Sovereign Bonds] are USD 12.55 billion plus an accrued interest of USD 1.68 billion. Even though the President promised to provide the agreement with debtors to be presented to the Parliament it hasn’t been tabled yet. The Government had arranged national celebrations to welcome the “debt restructuring” but it was a total failure.

Based on government statements and the publicly available information on the proposals of bond holders and the joint working agreement, it is more likely that upward adjustment will have to be done to the total ISB debt, thus it will end up with more payments to bond holders because of reduced haircuts [ the reduction of outstanding interest payments, or a portion of a bond payable that will not be repaid] and increase in the coupon rates [amount of annual interest income paid to a bondholder] over a period of 15 years. There is no reference to any hair cut from the bilateral debts. If the bilateral debt were restructured without a haircut before ISBs, that would be a bad precedent and then ISBs holders would argue for an equitable payment scheme without a real debt relief. Then existing ISBs are likely to be replaced with new bonds with high interest rates for longer maturities.

This will force Sri Lanka into a debt trap. The government has simply ignored the impact of the high interest costs of public debt, which will further curtail essential public expenditure and lead to more and more taxes on ordinary people. 

In November, Sri Lanka’s top court ruled that ex-president Gotabaya Rajapaksa and his brother Mahinda were among 13 former leaders responsible for the country’s worst-ever financial crisis. In 2022, inflation surged as foreign reserves emptied and the country ran out of fuel, food and medicine. The crisis sparked months of huge public protests that eventually toppled Mr Rajapaksa. The leaders “actions, omissions and conduct” sparked the crisis, the ruling noted.  To what extent has justice been served by this ruling (NOTE: the ruling’s only penalty was for legal fees to be paid)?

In fact, this ruling was given on two fundamental rights petitions filed in the supreme court. The ruling stated that respondents had violated public trust and breached Article 12 (1) of the Constitution by cumulative actions and inactions thus not protecting the public interest.

It is up to the Attorney general to proceed with the outcome of that ruling to bring the culprits to book for the damage that they have done to the entire economy by not acting within their purview.

The ruling is a clear indication that top brass in the political sphere and public officials have acted against the public interest. However, very little is achieved in terms of social justice as no respondent was punished for their gross violation of public trust and huge cost incurred upon people. This is how the judicial system is influenced, and rights of people are deprived by the corrupt politicians and their networks in Sri Lanka. There are many more in these corrupt networks including past and current rulers, officials and their allies to be prosecuted and held accountable for these crimes committed against Sri Lankan nation and public.

Austerity measures imposed by the IMF have seen the government aiming to restructure and privatise state-owned enterprises like Sri Lankan Airlines, Sri Lankan Insurance Corporation and Sri Lanka Telecom. Lower and middle classes, including professionals and small and medium business owners have been hit by hikes in income and value added taxes, designed to shore up the government’s shaky finances. Trade unions and other groups have been protesting. What is the current situation with these policies and popular opposition against them?  

It is obvious that the government doesn’t have any intention of stabilizing the economy and taking the country out of this abyss. Instead, it tries hard to hold on to and clinch power by deceiving the public by institutionalizing the idea that the government is reviving the economy by meeting IMF indicators. 

The government is not worried about how hard the people are struggling to live with the consequences of austerity measures and both their actions and inactions. Had the government acted genuinely, to meet the targets of revenue based fiscal consolidation recommended by the IMF, it could have easily restored to the position of increased government revenue by broadening the tax base, increasing the efficiency of tax collection and administration, and stopping leakage in the tax system such as tax frauds, tax avoidance and text evasion.

But the policy of the government is totally different and it tries to pass the entire burden to ordinary people with more taxes. For example, the amount of tax defaults as of 31st December 2023 was more than rupees 1100 billion that accounted for more than one third of the estimated government revenue. Most of these defaults are from wealthy people and companies. The recently announced imputed rental income tax (IRIT) on occupied dwellings or vacant properties is a good example of the government’s intent to tighten the grip on ordinary people in the guise of taxing wealthy property owners. The effect of the tax would be that people on low and modest incomes theoretically able to secure rental income but in fact receiving nothing from an abandoned or vacant building, house or room could end up paying more than those with plenty.

On the other hand, the government doesn’t take any practical measures to curb corruption and reduce wastage that in turn increases government expenditure. The enactment of the anti-corruption Bill is a mere symbolic compliance requirement of IMF recommendations.

Austerity measures of the government have significantly reduced the spending power of people and the capacity of manufacturers to produce goods and services. Those policies have dire consequences for the livelihood of people and maintain the country in a state of bankruptcy. For example, the United Nations Development Programme recently revealed that 55% of the population of Sri Lanka is facing economic vulnerability.

Even though there are protests and oppositions by political parties, trade unions and civic organizations against those destructive policies, its impact is not significant. This may be partly due to the fact that people   are aware that the government will not do anything good for people at this moment and on the other hand they are in a mood to chase this government out in the forthcoming presidential election. Furthermore, malicious government propaganda against such opposition has to some extent successfully labelled it as destructive sabotage at a time when the government is trying to revive the country’s economy in line with IMF agenda.

The government has been criticised for meeting popular protests with force – ever since the 2022 demonstrations were violently broken up, Sri Lankan authorities have been using tear gas, water cannon and even beating protesters. Has this bowed popular resistance to these neo liberal policies?

No. However, the government has been able to keep such resistance under control, to some extent due to many reasons. It uses its propaganda campaign to highlight the Covid 19 as the main cause for the current economic crisis by hiding the ugly face of neoliberal policies, corruption and bad governance.

Furthermore, the government argues that the IMF is the only path to recovery. This idea has been established in some sectors of the country and they misbelieve that those who are responsible for the crisis can solve the problem with the help of IMF. On the other hand, the contracted economy and austerity measures which have pushed people towards more hardship have allowed the government to maintain its shaky rule on the pretext of recovering the economy while keeping the entire economy in a bankrupt and defensive mood. Hence resistance can be easily ignored and labelled as destructive.

There has been division among the opposition, characterized by unorganized actions, shortsighted actions, government sponsored actions, conspiracies, sabotage, one part under cutting and contradicting the other. These have given the government opportunity to control them and so all the forces of opposition are not so far organized as one force against the government.

As I previously stated, the opportunity for the people to topple the government at the fourthcoming election would also account for the passive mood of resistance against the government [in the streets.]

The 2022 crisis, precipitated by Covid and deep tax cuts, was a dramatic fall for a country that was long held up as an economic success story and had one of the highest average incomes in South Asia. The quality of its infrastructure, its free public health and education systems and its high levels of social development have all been held in high regard. The economy has revived somewhat, with tourism bouncing back, yet unemployment  remains high as industries  that collapsed at the height of the crisis have not yet returned. …. Is there any chance of recovering Sri Lanka’s former enviable reputation?

The stance that the country was prospering before the COVID pandemic and deep tax cuts is not true. It is a fact that Covid and the tax cut aggravated [a preexisting] problem. Reported successes and good economic indicators prior to COVID are mainly due to heavy leverage achieved through public borrowing and not due to any robust economic policies or proper conduct. 

Public debt, which has been increasing at an average annual rate of over 15% over the last three decades, has now reached an unsustainable level. Most of these borrowings were misappropriated in wasteful projects and have gone missing in corruption. It is unlikely that the economy will be revived and put into sustainable growth trajectory with neo liberal policies and the agendas of corrupt regimes. 

However, there is an alternative path open for us at this critical juncture to change the destiny of people and bring prosperity for all by establishing an uncorrupted Left democratic government with good governance characterized by transparency, accountability and people-friendly pragmatic economic policies implemented through proper planning and guidance.

Sri Lanka was the second country to introduce neoliberal economic policies after the CIA installed Chilean dictatorial regime. Throughout the last five decades all the governments tried their best to destroy free education and the free health system which helped Sri Lanka to achieve a relatively high socio-economic level.

Therefore Sri Lanka needs a government which is capable of bringing forward new non-neoliberal economic policies, and protecting and strengthening public services.  NPP- National Peoples Power is preparing for this. People on the other hand are getting ready and rallying around us irrespective of any political or other identities that they have in order to initiate this noble task by registering a landmark victory for people at the fourth coming presidential election. 

With a high cost of living and poverty stubbornly high – above 25% in the next few years according to the World Bank – there has been an exodus of the country’s youth: in the depth of the crisis in 2022, an estimated 311,269 people left, an unprecedented scale of migration. And many were skilled workers like doctors, paramedical and IT professionals. The scale of the brain drain and loss of skills is undermining the country’s economic recovery. And what of the exiled Sri Lankans – have they found a better life abroad, and is there any chance of them returning?

It is true that this exodus is going to be a big obstacle for Sri Lanka. In fact, we do not have a complete account of the status of those who migrated with a loss of hopes for future amidst the present crisis.  Those who possess required skills and competencies, especially in professional fields, will have better opportunities, while many more will have to struggle. No matter what advantages they will find abroad, they will not find a peace of mind and better life anywhere else compared to the motherland. 

The evidence and experiences of the Sri Lankan diaspora who recently migrated is that they face huge economic difficulties. Many professionals have to work in unskilled, vulnerable, unsecured jobs particularly in many European and North American countries. A considerable percentage of them face the dilemma of whether to stay abroad or return. But most of them have no choice of return due to the loans they took out in order to finance their migration.

They are unlikely to return to Sri Lanka immediately at this moment unless they see hope, that the country would be a better place for them to live comfortably. But we need them back in Sri Lanka to pursue the rebuilding the country, mainly because they have enormous production capacity.

We are organizing them as a social political force which will enhance their welfare as well as when they are established in respective  migrated countries they can contribute to Sri Lanka through their knowledge.

Along with a number of South Asian countries, Sri Lanka will hold elections this year. Presidential elections are expected to take place in September or October. However the opposition is split, between Samagi Jana Balavegaya (SJB) led by Sajith Premadasa, once an ally of current President Wickremesinghe, and the National People’s Power (NPP), the parliamentary wing of the Janatha Vimukthi Peramuna (JVP), a progressive party popular with the youth and lower middle classes and seen as being clean and free of corruption. Any government would also need to seek alliances with nationalist and minority parties. How do you see the elections panning out?

First and most importantly we are engaged in our election campaign great hopes of victory. In doing so, we are organizing people in different ways with different means. Within the country, our organization and campaign structure spans the national to grassroots levels where we are engaging in door-to-door canvassing. In addition, people are organized based on their identities and profession as well. We reach out to people through visual media print media, social media, different forms of meetings, discussions and other strategies. Not only that we have been organizing the Sri Lankan diaspora in an effort unmatched by any other political party.

We think that to overcome the crisis and elevate Sri Lanka to a modern developed nation there should be a new kind of National Liberation Movement.

That movement has to fulfill the betrayed and abandoned causes of the old weak liberation movement of Sri Lanka led by the comprador capitalist elite during 1930s and 40s.

We have set three main objectives to be fulfilled by the New Liberation Struggle.

1. Nation-building by uniting all the communities through the establishment of equal cultural political  rights to all and stopping all kinds of discrimination.

2. Overcome the economic crises and introduce policies to modernize and industrialize the whole country while promoting public services for the common benefit of the people.

3. Laying the foundations in the economy, agriculture, education, energy, social rights among other sectors, putting Sri Lanka on the path to become a developed country within the next 25 years.

All other parties have identified NPP as their opponent and therefore are carrying out malicious campaigns against us, mudslinging, fabricating stories and demonizing our people-friendly progressive policies as ‘too socialist’ or ‘unpractical’.

With public sentiment against the government, capitalist, rotten and racist opposition parties are trying hard to attract to their camps the people who are more likely to vote NPP by steering them away from subjects like corruption and economic mismanagement.

The government has launched its campaign using various means to divert the attention of people away from the real causes of this crisis and propagate the idea that the government is [taking Sri Lanka] on a path of recovery with the help of IMF. Furthermore, the government is using various programs to bribe voters with a social safety net program recommended by IMF and title deeds of lands to people who live without having clear land ownership. 

It is likely that all other parties will unite under one platform against NPP at the last minute to rescue the corrupt economic political system, regime and crooks. However, under any circumstances, we are hopeful that we can overcome those challenges and organize people within the broad platform of NPP, where any progressive force can join hands with us to defeat the corrupt regime. 

Finally, what can progressive people overseas do to show solidarity with Sri Lankan people?

First they can stand firm with a progressive and people’s political movement like NPP by introducing this new popular left democratic movement to left and progressive organizations of respective countries.

Secondly they can expose how neoliberal economic policies destroyed Sri Lanka’s economy and society in general, and by putting pressure especially governments in Europe to investigate the role played by so called ‘European donors’ and IMF, World Bank etc.

Thirdly they can exert pressure [on these governments] to cut foreign debts as they much propagandized before reaching the agreement with IMF. Now it is clear that the so-called Paris Club has not cut a single Euro from the Sri Lanka’s mountains of debt. And progressives can expose how IMF and European capitals are pressuring Sri Lanka to privatise state-owned companies.

Finally, they can support us in numerous ways including making a shield of solidarity to protect the people-friendly government of Sri Lanka that most probably Sri Lankan people are going to establish in mid-October.

Thank you very much for the solidarity.


Bimal Rathnatyake is a member of the political bureau of JVP Sri Lanka, a former MP and national executive member of the NPP.

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