Courtesy Hiru News

A group of 120 internationally renowned economists and development experts has issued a joint letter calling for the immediate suspension of Sri Lanka’s debt repayments, citing the devastating impact of recent floods and Cyclone Ditwah.

The group argues that the scale of destruction constitutes a force majeure” event, making it impossible for Sri Lanka to meet IMF-mandated debt repayment obligations without worsening humanitarian suffering.

Speaking exclusively on the initiative, Professor Jayati Ghosh of the University of Massachusetts, one of the lead signatories, said international lenders must fundamentally rethink how sovereign debt contracts operate during large-scale disasters.

This should become standard practice for government borrowers as well. There is something called force majeure a legal term referring to a major event outside your control that prevents repayment,” Ghosh explained.

It can apply to earthquakes, tsunamis, and a whole range of situations where companies take on debt and simply cannot repay. There have been strong arguments that similar provisions should apply to sovereign governments when they face circumstances well beyond their control that severely affect their ability to repay.”

Ghosh said the most immediate solution is a temporary suspension of debt repayments, allowing the country space to respond to the crisis.

There should be a suspension of debt payments until this calamity is dealt with. That does not mean fully resolved, because reconstruction will take several years. But at least during an interim period when the economy is still reeling, people need rehabilitation, essential infrastructure must be rebuilt, and displaced communities must be rehoused debt payments should be suspended.”

Responding to the Sri Lankan government’s request for a US$200 million Rapid Financing Instrument (RFI) from the IMF, Ghosh warned that additional borrowing would only deepen the crisis.

The solution to a debt problem is never more debt. Unfortunately, both countries and the IMF forget this. Their aim seems to be to make the country more ‘creditworthy’. But emergency financing or RFIs simply add to the debt burden,” she said.

This is clearly a force majeure event something far beyond the government’s control and it requires a rethinking of the original debt contracts, not more borrowing.”

Ghosh also criticised the IMF’s Debt Sustainability Analysis (DSA), arguing that it failed to distinguish adequately between foreign-currency debt and domestic debt, creating unrealistic repayment expectations.

The IMF’s own numbers were already very optimistic about Sri Lanka’s ability to repay in foreign exchange because they did not properly separate foreign debt from domestic debt. They lumped everything together,” she said.

Economic growth may occur domestically in Sri Lankan rupees, but that does not automatically generate sufficient US dollars to repay foreign debt. The IMF’s assessment has already proven to be extremely demanding and onerous when it comes to foreign-currency repayments and the disaster has now completely invalidated those assumptions.”

The economists’ letter urges international creditors and the IMF to recognise the extraordinary circumstances facing Sri Lanka and to prioritise humanitarian recovery over rigid debt enforcement.