Yukthi, a collective supporting Sri Lanka’s working-class movements and struggles for democracy and justice, has issued a strong appeal for sustainable economic policies that prioritize the well-being of the people.
The forum vehemently opposes a return to high-interest international capital markets, citing the significant burden these have already imposed on the nation.
On December 13, 2024, the Ministry of Finance announced the completion of a controversial debt restructuring agreement related to Sri Lanka’s international sovereign bonds.
This deal, finalized during a politically sensitive blackout period two days before the presidential election on September 21, 2024, has drawn widespread criticism for its long-term economic repercussions.
Yukthi warns that the agreement, which relies on Macro-Linked Bonds (MLBs) tied to Sri Lanka’s dollar-denominated GDP, will cost the country billions of dollars while failing to provide any substantial debt relief.
Under the terms of the deal, Sri Lanka’s debt repayment obligations are linked to the anticipated rise in its dollar GDP between 2025 and 2027.
However, this projection assumes a temporary appreciation of the Sri Lankan rupee under the ongoing IMF program, which delays significant repayments to bilateral and commercial creditors. An appreciated rupee, while boosting dollar GDP, could hurt foreign earnings necessary for external debt servicing.
The arrangement has severe implications for public finances. External debt servicing is projected at 4.5% of GDP, with repayments consuming 30% of government revenue. This leaves minimal fiscal space for public spending, forcing working people to shoulder the economic burden while bondholders profit.
The debt restructuring deal is a cornerstone of the IMF Agreement approved on March 20, 2023. This program enforces austerity measures that disproportionately affect Sri Lanka’s working class, ensuring creditor repayments at the expense of public welfare.
Yukthi critiques the agreement’s assumption that Sri Lanka will return to international capital markets for development financing post-2027, describing this as a dangerous strategy likely to perpetuate cycles of debt.
Additionally, the IMF’s recommendation to liberalize imports could worsen Sri Lanka’s balance of payments. A renewed influx of luxury imports could deplete foreign reserves, making it difficult to secure essential goods during future economic shocks.
Yukthi argues that such policies, driven by financialisation and external borrowings, would only extract further from working people, who already face rising costs for essentials and reduced access to public services.
Yukthi calls for a complete rejection of these unsustainable economic approaches. Instead, it advocates for policies that foster sustainable development, uplift the working class, and reduce dependence on predatory international capital markets.
By prioritizing social welfare and essential public spending, the government can address the needs of the most vulnerable while steering Sri Lanka toward a more equitable and resilient economic future.
