Columns

The country’s debt repayment obligations, coupled with the weakening of the balance of payments due to the adverse impacts of Cyclone Ditwah, necessitate substantial international financial assistance, as the costs of the reconstruction are huge.

Furthermore, the country’s export capacity and earnings from tourism have weakened the balance of payments.

Assistance imperative

International financial assistance is imperative not only for the reconstruction of the country battered by Cyclone Ditwah but also for the stability and revival of the country’s external finances. The debt repayment obligations need to be rescheduled and restructured with foreign assistance.

Financial need

Last Sunday’s column captured the extensive damage and destruction in 18 of the nation’s 25 provinces and the adverse impacts on the economy. The destruction is of a magnitude that requires substantial foreign assistance. This has been forthcoming from many foreign countries and international organisations. The commitment of foreign governments has been astonishing. Medical personnel, hospital equipment, medical supplies, aircraft, helicopters and rescue personnel from foreign countries have been beyond expectations. However, there is a need to ensure that the country’s external finances are adequate to meet the large foreign debt repayments as well as the increased import requirements.

Financial assistance

The import costs of rebuilding from this massive natural disaster are beyond the capacity of the country’s external finances. The scale of finances required for the reconstruction is beyond the country’s financial capacity. The country cannot afford to incur additional foreign debt to meet the costs of reconstruction. International financial assistance is, therefore, imperative.

UNDP

The Resident Representative of the United Nations Development Programme (UNDP) in Colombo, Azusa Kubota, articulated this need in no uncertain terms. She called on international partners to provide affordable financing and recovery instruments for Sri Lanka, warning that the country cannot absorb additional debt to rebuild after Cyclone Ditwah flooded 1.1 million hectares and affected 2.3 million people nationwide.

The UNDP representative said that the recovery efforts now hinge on targeted external support to prevent the disaster from deepening into long-term economic and social fragility. She explained, “After one of its worst economic crises and a slow but steady recovery underway, international partners must step up with affordable financing and innovative instruments that enable a rapid recovery and rebuilding with greater resilience, without the country falling off the debt cliff.”

The UNDP Resident Representative’s remarks must be taken seriously, and an institutional mechanism established to obtain financial aid to cope with the impending financial difficulties. International financial assistance is needed for economic stability and reconstruction of the country battered by Cyclone Ditwah and revival of the economy.

Proposal

The government must be aware of the need for financial assistance akin to the 2022 financial crisis. It should take steps to form an aid consortium under the chair or co-chairs of friendly countries or international organisations.

International financial institutions—such as the International Bank for Reconstruction and Development (IBRD), which is better known as the World Bank, the UNDP and the ADB—or a group of countries like Japan, India or Britain should take the initiative and head such an aid consortium.

Working group

The initial contours of the project proposal must be designed by a small group of officials, such as the Governor of the Central Bank, the Secretary to the Finance and a representative of the private sector.

Summary and conclusion

The country’s debt repayment obligations, coupled with the weakening of the country’s balance of payments due to the adverse impacts on the country’s exports and earnings from tourism, necessitate financial assistance. International financial assistance is vital not only for the reconstruction of the cyclone-battered country but also for the stability and revival of the economy.  As the UNDP Resident Representative in Colombo said in no uncertain terms, the country requires international financial assistance to stabilise the economy. To obtain financial assistance akin to the 2022 financial crisis, the government should take steps to form an aid consortium chaired by a friendly country or an international organisation.

There can be no doubt that the reconstruction of the country requires substantial foreign assistance.