Sri Lanka should not cut social spending while servicing debt: UN expert

Sri Lanka must not cut its social spending while servicing its external debt, a UN expert said on Tuesday, urging authorities to boost domestic demand through progressive tax reforms, expansion in social benefits and renegotiation of debt.

“The Sri Lankan government should undertake an assessment of the human rights impact of both its economic reform policies and infrastructure projects,” said Juan Pablo Bohoslavsky, the UN’s Independent Expert on the effects of foreign debt on human rights, concluding his nine-day visit.

Struggling to rebuild its post-war economy in the last decade, Sri Lanka resorted to heavy external borrowing. The country’s foreign debt stood at $28.7 billion in 2017, according to official data. Pointing to loans from the World Bank, Asian Development Bank, Japan, South Korea, India and China, that account for a total $19.3 billion, nearly 48% of the total loans taken by the state, Mr. Bohoslavsky criticised both bilateral donors and multilateral agencies for ignoring human rights assessments in line with international standards.

IMF funding

The IMF’s Extended Fund Facility of $1.5 billion, he said, had resulted in reforms, including those aiming at lowering the budget deficit and towards higher government revenue.

However, while some macroeconomic targets had been met, there were “gaps to be addressed from a human rights standpoint”, he noted. “Neither the government nor the IMF have conducted an ex ante human rights impact assessment of the economic reforms implemented or announced.”

Underscoring the importance of recognising Economic Social and Cultural rights, he urged authorities to “explicitly integrate” them in the new Constitution being drafted.

In a sharp attack on microcredit, prevalent across the country and particularly among war-affected families in the country’s Tamil-majority north and east, the UN expert urged the government to establish an interest rate cap for financial institutions and individual lenders, in addition to passing strict regulations.

Women, he said, were “specially targeted” by microfinance companies that charged up to 220 % interest rates. They were often harassed by collecting agents demanding sexual favours. “I have learned of cases of borrowers who tried to sell their kidneys to repay the loans.”

His remarks come at a time when microfinance-induced debt has emerged a major challenge in the country, that both the Central Bank and the Finance Ministry have acknowledged. Provoked by a series of protests led by affected women in the north in early 2018, the government in June decided to write off the loans upto LKR 1 lakh, taken by women in drought-affected districts.

Welcoming the move, Mr. Bohoslavsky said the programme had to be broadened to include all affected individuals. “I also urge the Government to declare a moratorium, until this legislation is passed, in order to prevent vulnerable groups — in particular women — from being exploited and abused by lenders,” he said.