by Arundathie Abeysingh

The United Nations Development Programme (UNDP) is warning that debt is the main factor of vulnerability in the population. The causes include the 2022 economic crisis, rising inflation, unemployment, and unsustainable interest rates. Some people are forced to sell their furniture to pay higher prices for food and medicine, analysts report.

Colombo (AsiaNews) – The United Nations Development Programme (UNDP) has sounded the alarm, observing that Sri Lanka’s household debt crisis has intensified since 2023, this according to UNDP Resident Representative in Sri Lanka Azusa Kubota.

Citing alarming data from the 2023 Multidimensional Vulnerability Index (MPI), Kubota notes that debt is the main factor of vulnerability with at least 33.4 per cent of the population, already burdened by unsustainable debt for essential goods, including food and medicine.

To increase efforts, the UNDP is calling for broader collaboration, announcing the second phase of its private sector giving facility, focused on assisting women-led businesses and improving financial education nationwide.

The first phase successfully activated over US$ 6 million to assist communities at the height of the economic crisis.

Although local moneylenders seemingly offer high-interest loans during emergencies in a friendly manner, borrowers often end up paying interest for the rest of their lives.

Since 2022, when the island nation experienced its worst economic crisis, inflation has increased the prices of raw materials, energy, and transportation, negatively impacting sectors such as agriculture and manufacturing. Thus, to maintain profit margins, companies opted to cut their workforce.

Currently, over 50 per cent of households are burdened by debt, struggling to meet repayments amid the rising cost of living. As a result, a high percentage of them rely on loan sharks and microfinance institutions, which charge high interest rates.

People end up trapped in cycles of debt, like what people faced in the northern and eastern parts of the country about 10 years ago, which saw many people take their own lives.

“When import duties and indirect taxes are imposed, and subsidies are removed, people have to pay higher prices for basic necessities, including medicine, food, and fuel,” economic analysts Sashikala Dharmawardana and Amanda Hewapthirana told AsiaNews.

Since Sri Lanka relies on imports even for basics such as rice, dhal, sugar, milk, and now salt, the amount of money needed to support a family has increased significantly.

"Household incomes are inadequate to keep pace with the rising cost of living," they add. "People are forced to take out loans or sell jewelry and household items, including furniture, because even their small savings have gone. Due to the current crisis, most people are unable to repay their loans, and new loans are being contracted to repay old ones."

Although daily wages have increased from 1,000 to 3,000 rupees over the past three years, job opportunities have declined, making monthly income insufficient for basic needs.

"Because state and commercial banks only grant loans to people with assets or guarantors after assessing the borrower's creditworthiness, small farmers, fishermen, daily wage earners, and low-income workers are unable to access such loans," the analysts add.

As a result, low-income workers and daily wage earners have turned to loans to cover living expenses.

“This crisis has depleted household savings and emergency funds, while microfinance companies exploit people by offering daily, weekly, and monthly loans at high interest rates, targeting vulnerable people because credit is their only means of survival," they report.

Many people directly affected by the debt crisis are unable to voice their concerns or fight against exploitation, as their time and work are devoted to daily survival.

The government has failed to provide adequate social assistance to low-income and daily wage earners. The scope of cash transfers and food aid is limited and does not reach vulnerable people.

Although the Aswesuma programme, a new welfare programme to alleviate poverty and improve social equity, offers between 3,000 and 15,000 rupees per month depending on family size and vulnerability, delays in handing out the aid and red tape have prevented timely assistance.

• sri lanka
• household debt
• crisis
• loan sharks
• poverty
• unemployment
• aswesuma programme