it's been over a year since anger spilled onto the streets after Sri Lanka ran out of money the aftershocks of the crisis a struggle to survive and hunger 7 million Sri Lankans are currently living in poverty that's a third of the population the pricing of medicines have actually gone up about 3 to four fold how did we get here we got here because of excess debt that's how Sri Lanka got into a debt trap at one point our debt servicing was 100% of our Revenue Sri Lanka is tackling a complicated debt restructuring do you approve that report or not with a multitude of lenders and for the 17th time Sri Lanka is asking the international monetary fund for help now what is the end goal of the IMF program is it to go back to the international creditors as the country tries to find its way out of default experts warn of a contagion of debt distress far and wide the IMF is seeing 70 countries as potentially the next SRI lancas out there we really have to act and act urgently deconstructing a debt default that triggered alarm Bells around the globe can Sri Lanka change course and show the way [Music] [Music] forward this place is a Lifeline for cancer patient PA in Sri Lanka desperate to get hold of medications in short supply while prices rise his son Sanaya has been fighting cancer for 3 years but recently the 19-year-old had a scare facing the danger of treatments being disrupted his plight is a window into Sri Lanka's economic crisis even though Healthcare is free a cut in public spending means that even if you have a prescription medication might be out of stock with 80% of medications imported inflation and the falling rupe have seen prices Spike on the open market sanaya's family have been struggling to find and pay for life-saving drugs [Music] San and his father like many others have found help at the endira Cancer trust it's a non-governmental organization running about 20 programs for cancer patients recently they've been buying medication for an increasing number of of patients who have nowhere else to turn every day patients walk in here if the medicine is not available in the hospital they come here asking for help the pricing of medicines have actually gone up about 3 to four fold so if I look at a medicine that was say 6,000 earlier it'll be about 18,000 now and you need different Cycles depending on the type of cancer so it's a it's basically lacks of money that you need for a compan complete course so it's a lot of money for a single family to be and also it's not a single it is needed monthly or every two weeks inflation economic crisis dollar situation the political unrest all this has actually played a huge impact on medicines but the trust's budget is barely enough to buy medication for 100 patients each month so they help each person like Sanaya only once his father says he has no choice but to keep asking for help he's only able to work intermittently selling food as he takes care of his [Music] [Music] son this father knows he will have to borrow from family members for the next dose of medicine for his young child inflation and fuel shortages have also increased travel costs for the family as they make frequent visits to Columbo for treatment he's now considering more drastic measures to cope with [Music] [Music] expenses [Music] [Music] [Music] for for now a small reprieve for these families they'll have free lodging and food provided by by the trust for those traveling with their sick children to the capital for treatment a Community Kitchen was also refurbished to feed more cancer patients and groceries are given out for cancer stricken families in need we saw people walking into our office saying we don't have anything to eat can we please get something to eat and also we wanted to take something home when a patient walks in when you talk to them it's very difficult to turn them back so our effort is to raise more funds to help more [Applause] patients angry Street protests demanding then president goab by rajer buxer stepped down queuing for days for fuel shortages of food this was Sri Lanka after the government ran short of foreign currency reserves in 2022 [Music] to understand how badly the crisis affected families researchers conducted a survey from the north to the south of the country after the dead default 4 million people have fallen into poverty over the past 4 years and then say 7 million s Lankans are currently living in poverty that's a third of the population usually when you look at why poverty rates have increased it's due to one of two things it's one because their expenditures have increased or it's because their incomes have gone down and in fact I think in Sri Lanka both have [Music] happened at first glance life now looks normal in Sri lanca fuel is still rationed but the cues are gone inflation fell to single digits from 70% more than a year ago there's food in the markets but according to the survey more and more families can't afford to to buy what they need almost half of those surveyed limited meal portions people also ate fewer meals fathers for example will go out and earn a small bit of money that's not enough to feed the entire family so the parents will cook and then they will allow their children to eat adding to the financial stress the government has raised taxes by as much as 36 % and removed energy subsidies to raise its revenues this is part of the bailout deal with the international monetary fund negotiated by President ranil wkma singer after Parliament elected him in July 2022 as part of the deal Sri Lanka must also restructure its debt it's asking creditors both domestic and external for a 30% cut the external debt is owed to multilateral lenders like like the IMF bilateral lenders like China and India and international Sovereign bonds which Sri Lanka issued promising interest in the face value after a number of years just what went wrong while Sri Lanka has Hefty exports including tea and seafood a combination of factors would deplete its foreign reserves and revenue deficit in the fiscal account and deficit in the balance of payment so twin deficit problem uh was the main reason for the crisis in Sri Lanka creating a huge budget deficit and financing this budget deficit using domestic and international sources now if we borrow money just for the recurrent expenses pay salaries then how do we prepay loans the country is a magnet for tourists who brought in foreign currency y but Terror attacks in 2019 slowed arrivals that same year tax cuts would further deplete revenues as foreign debts and interest payments mounted by 2020 as the pandemic slowed economies Sri Lanka wouldn't be able to borrow from Capital markets as its creditworthiness dipped we had got used to rolling over um interest service payments on it when Market taxes dried up when Sri Lanka's credit ratings started to Tumble clearly we were on the brink of a major um financial crisis in 2021 a year before default 70% of Sri Lanka's revenues went on interest payments unable to service foreign debt repayments of about $4 billion US in 2022 Sri Lanka defaulted Sri Lanka is not alone fit rating says Sovereign defaults are at a record high eight other countries have defaulted since 20120 so Sri Lanka it's a microcosm of the broader pattern of accumulation of debt in developing countries they were allocating around 6% of GDP so half of their government revenues to pay interest on their debt right so for for every dollar that that that Sri Lanka uh uh reive more than 50% was going to pay to pay interest the UN published this report called A World of debt where we identified that there are at least 3.3 billion people that live in countries that are spending Less on health or education that they are spending on interest debt distress may stem from National policies but that's not the full story oh over the last three years we had a series of shocks that have affected the capacity of developing countries to repay back their debts this include coid which created a massive economic shock the war in Ukraine that push up substantially both food and energy prices and we also have actions of central banks in advanced economies that have increase the cost of of uh of of credit the IMF is seeing 70 countries as potentially the next SRI Lanas out there and we really have to act and act urgently in Sri Lanka's case a bird's eyee view of a southern town reveals the complex economic landscape we borrowed too much money at very high interest rates in dollar terms in short maturity and invested in non-revenue generating infrastructure projects for Sri Lanka at one point our debt servicing was 100% of our Revenue how much if Sri Lanka's debt servicing went to its biggest bilateral creditor China we'll have the inside story on the port that sparked accusations about debt trap [Music] diplomacy [Music] Amant TOA is nestled on Sri Lanka's southern coast it's known for fishing Agriculture and salt but it's also a few nautical miles away from one of the busiest shipping lanes in the world so there was a very strategic plan a nicely draft a strategic plan to develop hant as a strategic Hub there were several elements of that and uh number one was Port Sri Lanka secured over a billion dollars from China's export import bank and construction of the port began in 2008 around the same time all across humon TOA large buildings rose out of the Jungle linked by a little used Highway all built with Chinese loans the leaders at the time borrowed to develop their home District of just 600,000 people for one shop owner in hant toota the development was the start of the decline of his business Tony runs two shops in Hanta town he says business slowed down when construction of the port started where the harbor is now there used to be a road to the town but when the port was cut into the coast it cut into the road as [Music] well decentralization of services was another blow he used to make his money from people who shopped when they came to town for administrative services or to visit relatives in hospital the hospital has since been moved some 3 kilometers away and other services even further out foot traffic dwindled then came the economic crisis which meant people bought less he's had to trim staff from eight employees to just two and he's worried about whether he can keep his Shops going at all home for Tony is a reminder of a more prosperous time now it's all about trimming expenses he has four children to feed and [Music] educate then h for his wife has been porning her jewelry to tide them through number even before we complete the harbit and then we started constructing roads we started constructing conference Halls we started constructing airport then what happened to the feasibility Financial feasibility of all these projects well China's Landing has been largely focused on infrastructure and there are massive infrastructure graps in the in the global economy at least you know that the financing is going towards things that cause longer term growth about 10 minutes drive from humon toota town stands The Hub of the port the starting point of development in the area the port's current operators say they are contributing to the Sri Lankan economy and the local community when we took over the port in 2017 December they had 330 something employees today we are 1,1 100 all local we have only 18 exps marine services bring in a lot of money ship comes and just place at the birth we give an idle birth so it's a money not only for us it's money for the villagers they provide the channeling Services the whatever the vegetables or meats or whatever the ship wants the food so channelers make money then engineering people they come and make money the port had a rocky start as it opened Sri Lankan authorities had to ask China for more money a $40 million us loan to clear an unexpected obstacle they found that there was a massive rock at the seabed and the ships couldn't really basically docked at that Port but after the entrance to the harbor was cleared the port was still losing money unable to implement their plan of growing the port business Sri Lanka's authorities leased the port to a Chinese state-owned company in 2017 for over a billion dollars Sri Lanka used the money to pay off Western creditors that lease sparked off accusations of a debt trap from certain quarters in the US and UK of too much credit being extended and a failure to repay used to extract concessions it was our decision to implement those projects we really didn't have the affordability to continue to pay that loan so as a result at that point we had to in invite International [Music] Partners those Partners would be China Merchant Port Holdings which was already successfully operating a terminal in Columbo hont TOA International Port group focused on rollon rolloff also known as roro ships designed to carry wheeled Freight like cars we have the capacity to stack up to around 40,000 Vehicles when need to go were 95% of their business was the local Imports they did not realize the value of developing this place similar to Columbo being a transship hub for this to be a roo Hub and that's where we focused and today 99% of our business is transship in 2017 when there were no local import ban they had handled for a year was around 125,000 last year we handled 550,000 90% transip this year's projection is around 700,000 about a 20% growth we looking at the ports financiers are the Chinese who are Sri Lanka's biggest bilateral lender China's share of Sri Lanka's external debt is about 20% including financing from exm bank and loans for state-owned Enterprises but other than China we have so many other sources we can get money or investment for project like this like hamant development project but the thing is those loans are not easy to obtain and there are a lot of conditions to use the loan for the intended purpose and there are followups so then from our side we decides okay we don't want to go with that kind of restrictions we want to freely use uh money so we we go with China China is also Sri Lanka's biggest investor and its companies continue to invest in the country China Merchant group the parent company of China Merchant Port Holdings is building a logistics complex in Columbo Port the announcement in May of 2023 was the first major foreign investment since the debt default but why does China put its money in Sri Lanka well we have a lot of our um ports terminals Etc uh being operated by companies associated with um China India Japan um energy sector there's lot of investments from these countries as well Sri Lanka is in some sense very strategically located uh and and that's in in some sense is the reason why we've found ourselves being you know at the um negotiating and on many of these deals adjacent to the port project in Columbo another Chinese state-owned company is developing a tax-free special economic zone on reclaimed land extending out from the capital's business district in order to pay for the Reclamation of the land Sri Lanka needed an investment of over 1 billion doar but this time the deal was different Sri Lanka didn't put any investments into it the colum City initial agreement was that China would be given a freehold land Chinese president C Jinping launched the construction of the project in 2014 showing how important was to China but while China invested heavily it would be subject to Sri Lanka's terms including changes to the lease agreement when we had a change of government in 2015 um there was a decision to uh revisit that um agreement and they converted it to a 99-year lease rather than giving an outright lease hold on concerns that there should be national uh ownership or over land so the point is um do we have the negotiating power even when these leases come up to say no we're not renewing or you know we'd like to take it back as the world's largest Sovereign creditor attention is focused on how China responds to debt restructuring requests including from Sri Lanka according to one study China would lend more or roll over its debt rather than restructure it the research was done by the World Bank bank and other institutions so what will China do as Sri Lanka restructures its [Music] debt but are repayments for Chinese loans the biggest financial burden for Sri Lanka as we know Chinese loans to Sri Lanka make up about 20% of external debt if we deconstruct Sri Lanka's debt further Sri Lankan Scholars calculated that repayments for Chinese loans took up 20% of external debt servicing in 2021 but the biggest drain repayments for international Sovereign bonds at 47% this is more than double the external debt servicing for China if we remove this from our portfolio assume we don't have isbs you can easily manage all the Chinese funded projects from our uh foreign exchange revenues then we don't have an issue the challenge of reaching a deal with all its creditors could Sri Lanka's negotiations set a precedent for other countries in debt [Music] distress is there light at the end of the tunnel for Sri Lanka food and fuel shortages eased after the country received $330 million from the international monetary fund it's part of a $2.9 billion US Financial Lifeline negotiated by the president world has to know where we stand and but the next step for the IMF bailout hit a roadblock of a revenue targets which Sri Lanka did not meet the president is an old hand at dealing with the IMF the last time in 2016 during one of his six tenures as prime minister but will he be able to ensure a successful come of this 17th application for IMF help all 16 times if you look at our track record we haven't really uh delivered what we promised uh in about I think uh8 to nine cases we haven't complete completed the program the only difference is all 16 times before our debt was sustainable on the 17th time our debt wasn't sustainable so this debt is structuring has to be the first and the final one for Sri Lanka when you do it you better do it properly it will be very important to maintain uh the reform momentum the purpose of the program is to arrest the economic crisis and restore microeconomic stability and also debt sustainability the IMF says Sri Lanka's debt will be sustainable if it brings it down to 95% of GDP the ratio Compares how much a country o versus its annual economic output or how many years it will take to pay off debt if all the GDP is used even after the restructuring Sri Lanka could end up paying around 5% of their GDP per year on interest which means a very small reduction from their current levels of interest payments there is a substantial problem with the approach to debt sustainability used by the IMF because precisely this sort of analysis only focuses on how to mobilize resources to pay back creditors what matters is what happens to people so that's why we think that it's key to focus more about what does the de problem represents for development how this is affecting billions of lives not only now but for decades to come elections are also looming in Sri Lanka and with that the question of how politicians will approach unpopular reforms my concern is that there's still a lot of political uncertainty in the country I think there's some people in government might think that adopting these reforms at this time may damage their political position their ability to get elected Sri Lanka has a tradition of during election time of what I would call competitive populism back in the 19 70s when they had a rice subsidy literally every party would run on a platform that if elected they would increase the rice subsidy so you got to a point where the the rice subsidy was 70% of government expenditure investors are are waiting to see whether this government is serious about uh about these reforms but one thing was clear from the Nationwide protests in 2022 the interesting thing to me is that they put the blame squarely on the government they could have blamed the co crisis they could have blamed the Ukraine crisis but they didn't they said this is your fault the IMF bailout of $2.9 billion US seems inadequate compared to Sri Lanka's debt servicing needs alone of 4 to5 billion US a year but the deal will help Sri Lanka restore credit to confidence and pave the way to access Capital markets again but will Sri Lanka be able to avoid going back to the IMF or even another default history shows and the academic evidence shows that the conditions that the IMF puts on uh getting this financing aren't so great for the longer run they're an important shot in the arm now but they're misaligned with the ability to make the kinds of investments in a country to put it back on a path that this won't happen again it's almost the opposite of what we do in the advanced economies when we have a crisis we lower interest rates and spend a lot of money to get growth back on uh on track and then ease that away as the private sector comes back in and feels more comfortable the IMF and Sri Lanka has done the opposite what happens when there is no IMF so when a government has no access to financing it needs to do at least one of three things cut expenditures with all the consequences for the recipients of these funds it could access markets domestically which in Sri Lanka led to very high interest rates or it can access funding from the central bank which leads to very high inflation so the uh IMF is here to alleviate this situation uh and turn things uh around now what is the end goal of the IMF program they say by the time the IMF program will be over in 4 years Sri Lanka will be able to again go and borrow $ 1.5 billion in the international Capital markets is that our priority is it to go back to the international creditors Sri Lanka is going through now a debt restructuring process how did we get here we got here because of excess debt particularly commercial borrowing in the international Capital markets what are called International Sovereign bonds those International sovereing bonds which we started floating in 2007 the average interest cost is about 7.5% in dollars so if you take a dollar loan for 10 years at 7.5% by the time you repay it the interest cost is equal to the principal that's how Sri Lanka got into a debt trap restructuring International Sovereign bonds might be the most difficult issue as the Sri Lankan government tries to bring all the creditors to the table they're not acting because they don't want to set precedent and they're not acting because their governments aren't really asking them to International Sovereign bonds uh are are sold in in Global Financial markets so that means that you can have potentially thousands of creators spr spread around the world holding the debt of a specific country so if you were to do a debt restructuring you basically and you were to include everybody that owes a piece of the uh that holds a piece of the debt you need a stadium basically to fit everybody in the same place whereas countries such as Sri Lanka has to deal with the situation where they have less than one month of imports in terms of international reserves where they have food shortages fuel shortages medicine shortages whereas you have a creditor in London or New York they really don't care about what happens in the country as long as they get their their their money back so that's why we end up having a situation where there is already a court proceeding against Sri Lanka in New York to try to force the country to pay back their loans instead of dealing with a constructive solution when Hamilton Reserve Bank sued Sri Lanka it cited hardship to its investor suffering massive losses up to 80% of their Investments if it wasn't repaid the bonds are also held by other private foreign creditors raising the question of whether this debt crisis will affect the Global Financial landscape most economists don't think that it'll spread into the more advanced economies but we're already seeing it spread across Africa uh parts of Latin America and Asia too the epicenter of the 20 8 crisis was really in the advanced economies that had reverberations but not massive crises across the world I think this time it's the flip it's developing countries are going to be the epicenter of it we will feel it in the advanced economies but not as acutely um unless of course we don't act Sri Lanka's struggles to restructure its debt have revealed an urgent Gap in the Global Financial system there's no protection for countries that go bankrupt but is there anything that nations in debt distress can [Music] [Music] do Sri Lanka has been urgently piecing together a complex debt restructuring deal with a multitude of lenders just after the historic defa 182 economists and development experts call for Sri Lanka's lenders to take a different approach Economist Dr GTI go was one of them the impetus for our letter on Sri Lanka was really to uh recognize that this is not a sustainable debt that this is a debt that will have to be written down to a significant extent in order to be repaid at all and that if you don't write it down you're really not only putting Sri Lanka on a terrible trajectory of declining economic activity and causing immense suffering to Ordinary People but you're not going to have a payable debt even after 5 years developing countries pay much more for their debt than developed countries a report by the UN conference on trade and development says countries in Africa borrow at much higher rates than the US and Germany so why do they have to pay this higher debt because they're seen as higher risk but here's the interesting thing not only are they paying much higher amounts for their debt but then when the risk fructifies then the private creditor say we insist on being paid in full we will not restructure so there's a real problem because we don't have a system of sovereign debt restructuring globally but it's absolutely essential the concern is is that as a global Community we don't have an answer to those countries in terms of telling them well if you cannot pay your bills tomorrow this is the process to follow the idea is fairly simple in the sense of we have bankruptcy courts that operate at the national level we need a similar system for countries we have seen that when any financial institution is seen to be important let's say Silicon Valley Bank in the us or credit Swiss in Switzerland then the response is rapid it's flexible it's generous you know people work over weekends they do it overnight somehow countries have to be seen as important and they can only do that if they combine if they get together and they have a coordinated approach the focus in Sri Lanka has been on getting its finances in order but there are Winds of Change at a Grassroots level political Economist ailan kadama has been working with cooperatives to revive the economy in the North after nearly three decades of civil war that work has become even more urgent with the economic crisis according to the world food program they did a rapid survey unskilled workers incomes have har D but food costs have doubled so effectively they only have one quarter the amount of money in real terms to purchase food so I think our policy makers our economists think that Sri Lanka can rewind to 2018 before the economic crisis before the coid crisis before the Easter attacks and go back to borrowing from International actors in investing in urban infrastructure and real estate and just focusing on the tourism industry and somehow life can go back to where it was where we import luxury Vehicles import all the goods that we need and in the hope that somehow we can increase our exports I really doubt we can go back to where we were no point talking about an economic recovery if people are starving [Music] fish auctions kick off in the morning in jaffna fishermen haul their catch before Traders hoping for a good price price is the most important thing for fishermen because they've been out all night they are coming in the morning they're very tired they just want to get rid of the fish fish so then the Traders will try to buy from them for a thong so the Cooperative by organizing this auction somebody has to organize it if the offers are too low the fisherman can sell the catch to The Cooperative [Music] instead anyone can join in the bidding fishermen also have an insurance scheme of sorts they can donate a part of their catch into this blue bucket the contents of the blue bucket are sold at the end of the auction that money is used as a safety net for the fishermen if they fall sick for this whole basket uh I ended up paying about 99,100 rupees now of course in the jaffna market all of this will go for about 25,000 the cooperatives also dry and sellfish this is the we call it sea chicken people don't eat it people used to throw this fish but now it's getting a good price it's nice and tough like uh meat very popular in the South and now with the economic crisis dry fish we can't import because we don't have enough foreign exchange so there's a market for dry fish all over the country for Inland areas where Refrigeration is not possible dry fish is important because 70% of our animal protein comes from Seafood if you look at in the decade before the crisis we were on the average exporting about 200 to $250 million us do worth of seafood so fishermen were encouraged to get into high value Seafood species blue swimming crab sea cucumber of course they bring in valuable foreign exchange through exports but what is ironic and sad is that we were importing again on the average about $200 million worth of seafood but much higher quantities because this is low value Seafood like sprats which people use in their cooking Sri Lanka's economic crisis took a toll on Agriculture and rice production the country was 90% self-sufficient in rice but the sudden fertilizer ban during the economic crisis meant that rice production dropped by 40% and prices still haven't stabilized there are 500 Cooperative shops in the northern Province shops like this so if you can supply the rise to all those shops we'll be able to capture maybe 3% or 5 % of the rice market then we can become a price Setter both for the farmers and the consumer and at least then people won't [Music] stop there's a big push to increase milk production as well Sri Lanka is only 40% self-sufficient in milk if you collect milk 12 hours apart you would actually get end up getting maybe 60% more milk for the entire day the milk has a shelf life of a few hours so the cooperatives Run collection centers in the morning and evening now if you look at what the cooperatives are doing they collect milk from the farmers at 200 rupees a liter and sell it to the consumers at 220 rupees if you go to the local supermarket and you look at 1 liter of sterilized milk it's it's now 550 rupe almost 2 and 1 half or triple the price which is completely unaffordable to people rice milk fish this is what people in Sri Lanka depend on for their nutrition of course cooperatives can't do everything but at least in terms of getting food onto people's plate I think they have a huge role to play the global system is broken so a crisis like this it's time to take stop what can we produce locally because we can't allow our import Bill to run away that is where we got into this crisis we need to change our built environment so public transport so that it's cheaper affordable then our fuel bill will also decrease we'll be able to save foreign exchange if we can have a robust wealth tax we can invest it in this kind of reconstruction of the econ economy there are over 50 to 70 countries around the world who are going through debt distress like Sri Lanka and the way out of this crisis for Sri Lanka might also set an example for many other countries Sri Lanka is at a Crossroads and the way out of this crisis lies in answering some tough questions what's next after the IMF program What policies will turn the econom around and what will the next election bring the answers could set the country on a path to recovery or return it to a dead [Music] trap
