The economic crisis in Sri Lanka can be attributed to the injudiciously huge borrowings by successive governments of two political dynasties. The covid pandemic and the Russia-Ukraine war has aggravated the hidden crisis of that Greek Gift. Sri Lankan Government became helpless to service the loans that were incurred by its predecessors. Other myopic policies like tax relaxation for high earners, the mismanagement of the Covid pandemic and the banning of chemical fertilisers contributed to the situation. These were factors that operated on the primary cause, the unsustainable debts that had been incurred for purposes which lacked a clear public benefit and were tainted by corruption. Repayment of interests on the loans washed-out forex reserve of the country. Sri Lanka is totally incapacitated to service the loans.
The dollars in its coffers are less than the personal wealth of each corrupt politician. Some arguments must be found for rescheduling the debts. Among them are the lack of public utility of the debts, the lack of transparency in the loan transactions, excess of authority of public officials negotiating the loan, the unfavourable interest rates and the complicity of the lender in making the tainted transactions. The assortment of reasons can be
summarized in the legal doctrine of “odious debts.” Odious debts are something which is not the problem only Srilanka is facing. Number of developing and Third World countries are fraught with the same challenge. International monetary institutions like IMF, World Bank, Asian Development Bank, etc. has been adamant on realizing these poor countries the panacea for their miseries are structural adjustment programs. The excessive and unnecessary loans were offered to these poor nations blatantly ignoring the gravity of corruption there. The inevitable result of useless projects and prevalence of commission awarding trend in these countries paved the way for channeling out of the kickbacks from their own countries. The wealth earned out of corruption are stashed away from the very people for whom loans are unnecessarily given. The time has come to analyze the burgeoning crisis of Sri Lanka in the context of Odious Debt. India too is burdened with debt as total amount of external debt is more than 73% of our GDP.
The enormity of loans with unfavorable conditions and international pressures through the powerful monetary institutions have made poor countries like Sri Lanka helpless. India could face the similar problem in near future. We must seek the help of the Odious Debt theory where rescheduling of debts is possible. There is no other solution to this looming crisis which is all set to unfold anytime.