Sri Lanka’s misery should serve as a warning to the rest of the world in dealing with the global food and fuel crisis, the United Nations said on July 7.
The cash-strapped country declared bankruptcy on Tuesday after months of severe fuel and food crisis. Sri Lanka has run out of gasoline, while millions of its people are in need of life-saving aid.
The U.N. Development Programme (UNDP) said that other countries already burdened by the economic fallout of COVID-19 could face a similar situation as Sri Lanka, as the Russia–Ukraine war continues.
This is unless the international community agrees to take radical financial measures to help debt-ridden countries, the UNDP said in a statement.
“We’re witnessing a tragic series of events that are unfolding in Sri Lanka right now that should be a warning to anyone who thinks that it is up to countries themselves to figure out how to deal with this crisis,” said Achim Steiner, the UNDP’s administrator.
Many countries experienced 36 continuous months of shock, beginning with the COVID-19 pandemic and the Russia–Ukraine war, which affected global food and energy supply.
The U.N. Food and Agriculture Organization said the number of people affected by hunger globally rose from 46 million in 2020 to 828 million last year.
“Official estimates are about 125 million people falling into poverty over about 18 months … what we found right now is that three months of inflation have drawn about 71 million people into poverty,” UNDP senior economist George Gray Molina said at a U.N. press briefing.
Sri Lanka Goes Bankrupt
Sri Lanka defaulted on its debt for the first time in May. The country has sought bailout packages from the International Monetary Fund (IMF) and loan packages from its major lending partners, including Japan, China, and India.
Prime Minister Ranil Wickremesinghe declared Sri Lanka bankrupt on July 5. He said the government will need to finalize and submit its debt restructuring and sustainability plan to the IMF by August.
“We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation than in previous negotiations,” Wickremesinghe told parliament.
“Once a staff-level agreement is reached, this will be submitted to the IMF Board of Directors for approval. But due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to them separately.”
The Central Bank of Sri Lanka has also increased interest rates by 100 basis points due to rising inflation. The standing lending facility rate was raised to 15.50 percent, and the standing deposit facility rate increased to 14.50 percent. (pdf)
Wickremesinghe said that Sri Lanka’s total debt has increased from 1.7 trillion rupees ($4.66 billion) in 2021 to 21.6 trillion rupees ($59 billion) in March this year, with $3.4 billion of debt maturing between June and December.
As of April 2022, the top creditors for the debt are the Asia Development Bank for $4.4 billion, China for $3.39 billion, Japan for $3.36 billion, and the World Bank for $3.2 billion.
According to Colombo-based thinktank Verite Research, Beijing’s interest rates have set the Chinese loans apart from other lenders, with interest averaging 3.3 percent, reported Nikkei Asia. Japan’s rate stands at 0.7 percent.
The maturity period for Beijing’s loan at 18 years is also shorter than for Japan’s loan of 34 years.
Sri Lanka’s Misery
The country’s unprecedented economic crisis has left millions of its people in need of life-saving aid, with the severe shortages of essential medicines and frequent power cuts jeopardizing the country’s health care system.
Christian Skoog, the UNICEF representative in Sri Lanka, said the current crisis is “stretching families to their limits” and that two in five infants in Sri Lanka weren’t fed the minimum appropriate diet.
“25 essential medicines for children and pregnant women—including for use in intensive care unit, surgeries, and treatment of life-threatening disease—are expected to run out in the next two months [and] this list is only growing. It’s a race against time,” he wrote on Twitter.
Sri Lanka already had the second-highest child malnutrition rate in South Asia before the economic crisis. The country’s food inflation stood at 57.4 percent in May, with widespread food and fuel shortages, as well as daily power cuts.
More than 300 Sri Lankans attempted to flee to Australia in the past few weeks due to the country’s economic turmoil. Sri Lankan police said that about 399 people had been arrested for attempting to flee to Australia as of June.