Debt Justice
Sovereign Debt Crisis
Unsustainable External Debt Status
Sri Lanka's external debt remains at unsustainable levels, with foreign currency obligations too high for the nation's export earnings and reserves, leaving little fiscal space for essential imports and public investment.
ACTION: Continue the fight for a debt restructuring agreement that is fair, transparent, and people-centred—not one that serves creditor interests at Sri Lanka's expense.
Damaging Debt Restructuring Agreement
The debt restructuring agreement, negotiated under duress, imposes harsh repayment terms that lock Sri Lanka into prolonged austerity while shielding private creditors from meaningful losses.
ACTION: Study favourable debt restructuring precedents from Argentina, Greece, The Gambia, and Ghana, and use these models to inform and fortify Sri Lanka's renegotiation strategy.
Flawed IMF Debt Sustainability Analysis
The IMF's DSA rests on overly optimistic growth projections and systematically underestimates repayment capacity constraints, creating a false narrative of viability that perpetuates the debt trap.
ACTION: Conduct an urgent, independent, and gender-sensitive Debt Sustainability Analysis to challenge the IMF's flawed assumptions and reinforce Sri Lanka's bargaining power in debt renegotiations.
Odious Debt, Concessionary Loans
Sri Lanka is burdened by odious debt incurred without public benefit, yet it is denied access to concessionary financing due to outdated income classifications, forcing it into expensive commercial borrowing.
ACTION: Conduct an independent debt audit to identify odious debt and legally challenge its repayment, ensuring that Sri Lanka is not bound by obligations that brought no benefit to its citizens.
Unjust Global Economic Order
An unjust global economic order—shaped by creditor-friendly institutions, biased credit ratings, and inequitable voting power—keeps Sri Lanka subordinated to financial systems that prioritise profit over people and planetary well-being.
ACTION: Join forces with other debt-distressed Global South countries to campaign for systemic reform of broken global financial institutions and create a more just international economic order.
Statement by leading economists and academics on Sri Lanka’s Climate Crisis and IMF Restructuring Deal – Dec 2025
Multilateral, bi-lateral and private lenders dominate in setting the rules and definitions surrounding debt issues, resulting in a system that drives many impoverished countries into long-term indebtedness, and which is ill-equipped to tackle debt crises in a timely, just and durable manner. As the nature of developing country debt becomes more complex, and traditional creditors are joined by new, and increasingly commercial lenders, risks to debt sustainability are growing. Market-based approaches to development further exacerbate these risks.
There is a urgent need to promote fundamental reforms to how debt crises are prevented and resolved, challenge irresponsible financing and the legitimacy of debts, and put the needs and rights of people ahead of debt service.
Sri Lanka should work closely with civil society partners in the global north and the global south to strengthen a more powerful global debt movement to push forward this transformative agenda.
Odious debts owed to external private creditors must be cancelled.
The harmful global debt architecture must change.
Government Debt.
Sri Lanka’s balance of payments deficit, burdened by unsustainable levels of dollar borrowings, is the key driver of the debt crisis.
There is no equivalence between domestic debt, the rupee borrowings (obligations can always be fulfilled by the government) and external debt, the US dollar borrowings. The external debt needs to be restructured, including the cancellation (or large haircut) of private creditor debts.
Government
The government revenue (in rupees and dollars) is inadequate to fulfil its obligations.
Revenue
The funding mechanisms available to the government for its rupee and dollar expenditure are unbalanced.
Expenditure
The government expenditure is not prioritised to enhance the well-being of people and environment in Sri Lanka.
Sovereign Debt
Multilateral creditors
Claims granted by international financial institutions (mainly the International Monetary Fund, the World Bank or regional development banks such as the Asian Development Bank) constitute multilateral debt.
Bilateral creditors
Claims granted by official bilateral creditors i.e. States (governments or their appropriate institutions, especially export credit agencies) constitute bilateral debt. Paris Club (US, EU, Japan), India & China are major creditors.
Private creditors
All creditors other than multilateral or official bilateral creditors are considered private creditors. These include suppliers, commercial banks and bondholders (International Sovereign Bonds issued by Sri Lanka in Dollars.)