September 07, Colombo (LNW): Prof. Lee C. Buchheit, a renowned expert in Sovereign Debt Management with a distinguished 43-year career in private legal practice, praised Sri Lanka’s disciplined approach in emerging from its recent economic crisis. He made these remarks at the 74th Anniversary Oration of the Central Bank of Sri Lanka (CBSL), held yesterday at the Atrium of CBSL Head Office in Colombo.
In his oration titled “Sovereign Debt: The Myth of the Golden Age,” Prof. Buchheit reflected on the complexities of managing sovereign debt in the modern era. He pointed out that creditors are unlikely to demand complete debt forgiveness, but will instead favor restructuring. Drawing on his vast experience as a tax and economic expert who has helped many countries recover from financial crises, Prof. Buchheit emphasized that sovereign debt is an inevitable outcome of crises such as economic downturns, pandemics, or wars. He humorously remarked that some sovereign debt could endure indefinitely, much like “true love.”
Prof. Buchheit also expressed his view that it is justifiable for countries to borrow internationally for credible infrastructure development. However, he argued that borrowing to maintain a large public sector or to provide regular handouts is not sustainable. He cautioned against the common practice of increasing taxes to service debt, citing Kenya as an example where such measures led to widespread protests.
To illustrate the global challenge of sovereign debt, Prof. Buchheit referred to the United States, the world’s largest sovereign debtor. “The total U.S. government debt now stands at about $35 trillion,” he noted. “What is astonishing about that figure is not just its size, but the speed with which the debt has accumulated.” He highlighted that over the past 25 years, the U.S. national debt grew from $6 trillion to $35 trillion, while its debt-to-GDP ratio surged from about 60% to 125%.
Prof. Buchheit further warned that according to the nonpartisan Congressional Budget Office, U.S. public debt is expected to surpass 170% of GDP in the next 30 years. He added that the incoming U.S. administration will face the daunting task of borrowing not only to cover the existing debt but also to refinance the $35 trillion debt stock, which will have repercussions for other countries as well.
Concluding his address, Prof. Buchheit likened the burden of sovereign debt passed on to future generations to environmental pollution, which he described as a “major sin.” He remarked, “The next generation, which may come to protest the state of the planet, cannot yet do so since they are not born.”
