Global economists call for debt moratorium as Cyclone Ditwah strains IMF targets

121 experts including Nobel laureates Stiglitz and Piketty warn current restructuring is “inadequate” for climate shocks 

Calls for immediate payment freeze and “fundamental rethinking” of framework as IMF defers 5th review 

By Nishel Fernando 

The fiscal calculus underpinning Sri Lanka’s economic recovery has been fundamentally altered by Cyclone Ditwah, prompting a coalition of 121 international economists to demand an immediate suspension of external sovereign debt payments.

In a strongly worded statement released this week, the signatories, including Nobel laureates Joseph Stiglitz and Thomas Piketty argue that the current debt restructuring framework is “inadequate” to absorb the shock of a disaster that has displaced 1.4 million people and left nearly 800 dead or missing.  

The intervention highlights a critical friction in the country’s recovery logic, the assumption that fiscal consolidation can proceed uninterrupted alongside catastrophic climate events. 

The core of the economists’ argument rests on the fragility of the 17th IMF agreement. While the restructuring deal secured a 17% reduction in debt payments in net present value (NPV) terms, the Treasury remains burdened with external debt service obligations equivalent to 25% of government revenue. This ratio, described by the experts as “one of the highest rates in the world,” leaves virtually no fiscal space for the massive reconstruction bill now facing the state. 

The statement heavily references the IMF’s own risk assessments to validate this concern. Even before the cyclone, the Fund acknowledged that Sri Lanka’s path to debt sustainability remained “knife-edged,” with social-spending benchmarks already being missed. Furthermore, IMF staff modelling suggests that even after full debt relief implementation, the country retains a 50% probability of defaulting again or requiring further restructuring. The economists warn that prioritising debt service continuity over relief “perpetuates structural exposure of Sri Lanka’s economy... to future disasters”. 

The disaster has effectively rendered the parameters of the ongoing Extended Fund Facility (EFF) obsolete. While the Central Bank acted swiftly to secure $206 million in emergency liquidity, this figure is dwarfed by official estimates placing the total economic loss between $6 billion and $7 billion. Facing this reality, the government has announced a recovery spending plan of approximately $1.64 billion (Rs. 500 billion) for 2026—expenditure that is currently unfunded within the existing primary surplus targets. Consequently, the IMF has deferred the 5th Review of the programme until Q1 2026, signalling that the Debt Sustainability Analysis (DSA) must be recalibrated to reflect the new economic baseline. 

The expert coalition is pushing for more than just a timeline adjustment. They are calling for a “fundamental rethinking” of the debt architecture, proposing a framework that “recognises climate-driven disasters as systemic, not exceptional, shocks”. Their demands include a suspension of payments to preserve foreign exchange for imports and reconstruction, followed by significant debt cancellation without “punitive conditions”. 

For the government, the statement provides intellectual leverage in upcoming negotiations but also highlights a severe policy dilemma. Adhering to the original primary surplus targets for 2026 would likely require deep cuts to public investment at the precise moment reconstruction spending needs to ramp up. 

The economists argue that “additional external debt is already being taken on... to deal with the impacts,” creating a cycle where new borrowing essentially finances the servicing of old, unsustainable debt. 

The statement was coordinated by the Institute of Political Economy (Sri Lanka), Debt Justice (UK), and Professor Jayati Ghosh of the University of Massachusetts-Amherst. 

Prominent Sri Lankan academics and researchers endorsing the statement include Dr. Amali Wedagedara, Dr. Priyadarshini Premarathne, and Dr. Susantha Rasnayake, alongside Sri Lankan academics based abroad such as Professor Kanchana N. Ruwanpura and Dr. Thiruni Kelegama.