Bankrupt Sri Lanka’s poor face life in darkness as price of IMF bailout

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Hundreds of thousands cut off from grid; fund insists social safety net is a priority

Colombo slum residents in July. Electricity price hikes have hit the poorest Sri Lankans hard, leaving many without power. (Photo by Ken Kobayashi)

BATTICALOA, Sri Lanka — As the sun sizzled over small, run-down houses in the eastern Sri Lankan town of Batticaloa, a 35-year-old mother struggled to keep her newborn baby cool in the front room of her home. She sat on the floor, cradling the infant as a ceiling fan slowly turned overhead.

The languid breeze from the fan, however, was a constant reminder of another worry. It was running on electricity illegally tapped from a nearby power line — a secret the family keeps to “avoid getting into trouble.” They resorted to this after their electricity was cut off five months ago, said the mother of three, Kausalya, who gave only one name to protect her identity.

“Our electricity bills went up after the government started to raise the prices last year, so we cut down our usage, even staying in the dark,” she recalled. “But even that was not enough.”

Her struggle to pay the power bills after three hikes since August 2022 echoes those of many other Sri Lankans. By October, over 500,000 customers had been disconnected from the power grid due to a failure to pay, the Ceylon Electricity Board, the state utility, confirmed to local media this month.

The darkness that descends each night on neighborhoods like Kausalya’s shows the new normal for bankrupt Sri Lanka — the price the country’s economically vulnerable millions have had to pay for the government to secure a $3 billion bailout from the International Monetary Fund. To secure the financial lifeline from the IMF in March, Colombo had to increase power prices in August last year and February this year. Last month, the loss-making CEB further increased power bills by 18% to 20%.

Many families have sunk deeper into debt by turning to loan sharks and borrowing at exorbitant 10% interest rates to try to keep the lights on. Some end up in the dark anyway.

“Now we have no lights and no money to pay for the loan,” lamented 48-year-old Anne, a mother of four, who also gave only one name.

Ceylon Electricity Board workers protest an electricity tariff hike and the privatization of the state utility in Colombo on Nov. 1.   © EPA/Jiji

The country’s dependence on the IMF followed its economic meltdown and sovereign default in 2022, widely blamed on mismanagement, corruption and ultranationalism on top of the impact of the COVID-19 pandemic. This triggered alarm across Asian and African countries of the so-called Global South that they, too, might face a similar fate.

Sri Lankan critics of the fund point to the tripling of electricity bills as an example of how the poorest in the country of 22 million people — or 5.8 million households — shoulder the heaviest burden. “The IMF really has a stranglehold with its austerity measures to slash subsidies and push for market prices of energy,” said Ahilan Kadirgamar, a political economist at the University of Jaffna in northern Sri Lanka. “Families already grappling with difficulties have to face harsher conditions.”

The growing number of families living without electricity has been flagged in a clutch of reports tracking the impact of the country’s worst economic crisis since independence in 1948.

“The increase in electricity tariffs in February 2023 by 66%, only a few months after a 75% increase in tariffs in August 2022, is an external shock that affected all low-income households,” noted one study about the working-class poor in Colombo, the commercial capital, by Colombo Urban Lab — an independent research and community engagement organization. “In the past few months we have seen an increase in letters sent to households or notices pasted on public notice boards threatening them with disconnection for non-payment of electricity bills in particular.”

Research by the Feminist Collective for Economic Justice, a Sri Lankan nonprofit grassroots advocacy group, noted that the August 2022 power increase, the first in nine years by the CEB, affected 3.14 million households that use fewer than 60 units of power per month. A policy brief by the FCEJ suggested that the state had “weaponized” access to basic services under the guise of pursuing an economic recovery.

Poverty itself is on the rise: In mid-2023, LirneAsia, a regional policy research organization, stated that the number of poor Sri Lankans had increased to 7 million this year, from 3 million in 2019, before the pandemic hit. The latest figure is equivalent to about 31% of the population.

Sri Lankan frustration with the IMF austerity conditions is part of a growing international chorus. In September, the global rights watchdog Human Rights Watch argued in a 131-page report, “Bandage on a Bullet Wound: IMF Social Spending Floors and the COVID-19 pandemic,” that austerity policies that “reduce government spending or increase regressive taxes” have a “well-documented history of undermining rights.”

The IMF has been pushing back against its critics, insisting that the Sri Lankan bailout marks a shift away from its stern funding conditions in the past. Officials from the fund’s headquarters in Washington have stuck to a consistent script during interviews with Nikkei Asia, saying the priority was placed on social safety nets for the vulnerable through cash handouts as part of the bailout.

“The increase in SSN (social safety net) spending is also accompanied by an improvement in targeting and coverage of SSN with the establishment of a new social registry and objective eligibility criteria,” Peter Breuer, the IMF’s senior mission chief for Sri Lanka, told Nikkei.

The fund suggested that the Sri Lankan government should pursue these welfare measures for the vulnerable by spending 187 billion rupees ($573 million), or 0.6% of GDP, in the 2023 budget — equivalent to tripling the 2022 budget allocation for social safety net spending. Per household, the amount was estimated to be double the welfare cash transfer in 2022.

But the reality on the ground is grim.

Teething problems afflict the government’s new welfare program, called Aswesuma, which aims to cover 2 million families through a staggered monthly cash transfer ranging from 2,500 Sri Lankan rupees to 15,000 rupees. The number falls far short of the 3.7 million impoverished families who applied to the state welfare board in April to qualify for the benefits.

Batticaloa has its share of poor residents, who are struggling with spiraling food prices, job losses and disconnected power. Some say they have been shut out from the new cash transfer program after benefiting from the previous Samurdhi welfare program.

“We are not on the list and not told why,” lamented Arunasalan Ilangeswary, a 47-year-old mother of two. “We have stopped using the fridge, don’t watch TV, shut off lights at night — just like the other 15 houses in our neighborhood.”

The article appeared in the Nikkei Asia. To read the original artcile, please clik here.