UNDP warns household debt crisis worsening

By Nishel Fernando 

The United Nations Development Programme (UNDP) warned that Sri Lanka’s household debt crisis has likely intensified since last measured in 2023, as it threw its weight behind a major new financial literacy drive with the Central Bank.

Speaking at the launch of the Central Bank’s key financial literacy initiatives, UNDP Resident Representative Azusa Kubota cited alarming data from the 2023 Multidimensional Vulnerability Index. The report found that debt was the single largest contributor to vulnerability, with 33.4 percent of the population already impacted by unsustainable borrowing for essentials like food, medicine and education.

“In view of the continued challenges around the rising costs of living, it is highly probable that individuals’ debt situations have deteriorated since the data was collected in 2023,” Kubota stated in her address.

This escalating crisis, she noted, prompted a multi-pronged response. The partnership between the UNDP and Central Bank has produced a suite of tools, including trilingual financial literacy modules, a teaching guidebook and a video advocacy campaign. These resources have been successfully piloted with youth and small business owners in the Colombo and Matara districts.

“It became very clear that we need multi-pronged solutions to address debt sustainability at household level as well,” Kubota remarked, emphasising that poor financial decisions, particularly among women, often lead to “precarious and unsustainable circumstances”.

To scale up these efforts, the UNDP is calling for broader collaboration and announced the second phase of its private sector giving facility. This next phase will focus specifically on supporting women-led enterprises and enhancing financial education nationwide. The first phase of the facility successfully mobilised over US $ 6 million to support communities during the peak of the economic crisis

“The more we join hands, the stronger we become,” she urged the assembled stakeholders.

Looking to the future, Kubota identified digital finance as the critical next step.

“We believe the next frontier of financial literacy must have fintech and the digital economy,” she said, highlighting the potential for technology to rapidly include marginalised communities in economic activity.