Sri Lanka’s crisis shows how debt is devouring the Global South

From Africa to Asia to Latin America, billions go hungry while creditors profit

By Anuka Vimuthi Silva and Amali Wedagedara

Sri Lanka is undergoing one of the most complex economic recoveries in its history. The country’s financial collapse in 2022 was precipitated by a toxic mix of unsustainable borrowing, poor fiscal management, and external shocks.

Mass protests erupted under the banner of ‘Aragalaya’, a broad-based citizens’ movement demanding accountability, economic justice, and an end to political corruption.

The uprising ultimately forced the resignation of the sitting president, Gotabaya Rajapaksa. However, following his resignation, the administration of Ranil Wickremesinghe recaptured power.

Delaying calls for new elections, in 2023 the Wickremesinghe administration negotiated US$ 3bn of support from the International Monetary Fund (IMF) under its New Extended Fund Facility (EFF) arrangement. Later that year, to unlock a second instalment of this bailout package, Sri Lanka also reached a debt restructuring agreement with a group of creditors including China, India, and Japan.

Even though, by September 2024, the Sri Lankan people elected a progressive government led by President Anura Kumara Dissanayake, with a historic mandate, the new administration has since been trapped within the constraints imposed by the IMF and the previous political establishment.

The mainstream neoliberal narrative has been quick to highlight the arrangement with the IMF, known as the 17th IMF program, as a sign of stabilization, praising the debt restructuring agreement and compliance with IMF conditions.

But what of the human cost of this “recovery”?

The punitive structural adjustment process includes privatizing state-owned enterprises, disconnecting the Central Bank from state control, curtailing the state’s capacity to borrow, and subordinating national development aspirations to the interests of creditors. It has placed the burden of its Domestic Debt Optimization on working people’s retirement savings, specifically the Employees Provident Fund (EPF), raising concerns among salaried workers whose current real incomes have already been cut by high inflation and higher taxes.

Public sector hiring has been frozen, major rural infrastructure projects in transport and irrigation have been delayed or cancelled, and funding for health and education has stagnated even as costs rise. The reforms undertaken to achieve macroeconomic stability, including interest rate hikes, tax adjustments, the removal of subsidies, increased energy pricing, and the erosion of workers’ pensions, have demanded a great deal from citizens.

The IMF program has also ushered in neoliberal legal reforms that erode the public accountability of the Central Bank, limit the government’s fiscal capabilities, and encourage the privatization of land, water, and seeds through agribusiness.

To meet IMF targets – most notably, the goal of achieving a 2.3%  primary budget surplus by 2025 – the Sri Lankan government has introduced sweeping austerity measures. Where else will that surplus come from if not from the money pots of the poor? Bankers may welcome this austerity, but for those living and working in rural areas and coastal villages, it spells hardship and fear. The imbalances within the debt restructuring program prioritize investor profit over the public interest, shrinking the fiscal space needed to rebuild essential services.

Civil society groups estimate that 6.3 million people are now skipping meals, and at least 65,600 are experiencing severe food shortages.

In a noteworthy move, President Anura Dissanayake has instructed the treasury to reinstate subsidies for the agricultural and fishing sectors. While welcome, this may not be enough. Fishermen report that fuel costs remain steep, eating into their incomes.

Farmers, many locked into chemical input-intensive production, are struggling with rising costs, climate catastrophes, and reduced state support.

Sri Lanka’s 2025 public health allocation accounts for just 1.5% of its gross domestic product – five times smaller than the amount allocated to service the interest on public debt. This stark disparity highlights the fiscal constraints placed on basic social spending.

But this is not just a Sri Lankan story.

It is part of a broader global debt emergency draining public finances across the Global South. A vast number of countries in Africa, Asia, Latin America, the Caribbean, the Pacific, and Central Europe have been forced to cede national policymaking autonomy to international financial institutions like the IMF, World Bank, and Asian Development Bank (ADB).

A recent United Nations Conference on Trade and Development (UNCTAD) report reveals that half of the world’s population – approximately 3.3 billion people – now live in countries that spend more on interest payments than on health or education. In 2024 alone, developing countries paid a staggering $921bn in interest, with African nations among the hardest hit.

UNCTAD warns that rising global interest rates and a fundamentally unjust financial architecture are entrenching a cycle of dependency and underdevelopment.

Developing countries routinely pay interest rates several times higher than those charged to wealthy nations, yet existing debt relief mechanisms remain inadequate – ad hoc, fragmented, and overwhelmingly tilted in favour of creditors. The demand for a permanent, transparent debt resolution mechanism – centred on justice, development, and national sovereignty – is gaining momentum among Global South governments.

This issue is also drawing serious attention from global grassroots movements.

In September this year, more than 500 delegates from around the world will convene in Kandy, Sri Lanka, for the 3rd Nyeleni Global Forum for food sovereignty. The gathering will bring together small-scale food producers, Indigenous peoples, trade unions, researchers, and progressive policy think tanks. One of the key themes will be the global debt crisis and how it undermines basic rights to food, education, health, and land.

The forum is expected to serve as a space to chart alternatives. Rather than relying solely on state-led negotiations or technocratic financial institutions, movements will strategize to build grassroots power.

They aim to link local struggles – such as farmers resisting land grabs or workers organising for living wages – with global campaigns demanding debt cancellation, climate reparations, and a transformation of the international financial system.

It is clear to those of us in the Global South that a just recovery cannot be built on fiscal targets and compliance checklists alone. We demand the reclaiming of public space for investment in social goods, the democratisation of debt governance, and the prioritisation of people’s dignity above creditors’ profit margins.

For Sri Lanka – and for countless other countries across Africa, Asia, and Latin America – this may be the most urgent and necessary restructuring of all.

-Anuka Vimuthi Silva, a small-scale farmer from Sri Lanka, is a member of the Movement for Land and Agricultural Reform (MONLAR) and La Via Campesina. Amali Wedagedara, a feminist political economist, is a Senior Researcher at the Bandaranaike Centre for International Studies (BCIS), Colombo, Sri Lanka.  This article was originally featured on aljazeera.com

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