Once regarded as a model for universal welfare in South Asia, Sri Lanka is now confronting rising food insecurity, strained public services and widening social vulnerability, prompting renewed calls from economists and rights advocates for a development model centered on universal entitlements rather than austerity-led growth.

For decades, Sri Lanka was recognized for its relatively strong public investments in education, healthcare and food subsidies, which helped establish high social indicators compared with many countries at similar income levels. Universal schooling, accessible healthcare and broad-based welfare programs were often cited as pillars of the country’s post-independence development strategy.

But recent years have seen that framework come under increasing pressure.

According to the Food and Agriculture Organization’s 2025 Hunger Map and the World Food Programme’s 2024 Household Food Security Overview, around one million people in Sri Lanka are now chronically undernourished, while nearly nine million more struggle to access sufficient nutritious food. Nearly four in ten households report inadequate diets, reflecting a sharp deterioration in food security in a country that was once largely self-sufficient in food production and a major seafood exporter.

The figures come against the backdrop of Sri Lanka’s prolonged economic crisis, which intensified after the country’s sovereign debt default in 2022 and triggered inflation, currency depreciation, shortages of essential goods and sweeping fiscal restructuring.

Dr. Ahilan Kadirgamar, a leading Sri Lankan economist and senior lecturer at the University of Jaffna, said the country’s current challenges reflect not only immediate economic distress but a deeper structural shift away from universal welfare protections.

He argues that austerity measures, combined with financialization and infrastructure-heavy development priorities, redirected state resources away from people-centered public services and toward projects that did not adequately protect livelihoods.

“Until recently, Sri Lanka was a country that could sustain itself and export seafood worldwide,” Kadirgamar said. “But now we are facing a situation where millions are unable to access enough nutritious food, and public institutions are under severe strain.

”According to Kadirgamar, hospitals continue to face shortages of essential medicines, universities are functioning under reduced real funding, and welfare programs have become increasingly narrow and targeted rather than universal, leaving large sections of the population exposed during periods of crisis.

He said the transition from universal subsidies toward selective welfare mechanisms has weakened the resilience of ordinary households, particularly during inflationary shocks and employment disruptions.

Kadirgamar has called for what he describes as a “Human Rights Economy,” a framework that places universal access, democratic participation and social protection at the center of economic decision-making.

Rather than treating economic planning as a technical domain reserved for specialists, he argues that citizens must have a direct role in shaping the priorities that affect their livelihoods.

“Economic policies cannot be the realm of experts,” he said. “It must be democratized. It is people’s demands that should determine economic policies.”

The concept of a Human Rights Economy has gained wider attention through advocacy by the Office of the United Nations High Commissioner for Human Rights, which frames economic governance through the lens of rights protection, equality and public accountability. The approach emphasizes that economic growth alone is insufficient if it does not translate into dignity, food security, healthcare access and social participation.

Kadirgamar said such a shift requires not only policy reform but also organized civic action.“Change will not come without action,” he said. “There needs to be coalitions organizing at every level.”He pointed to cooperatives as one practical mechanism for rebuilding resilience.

Small, democratic and community-based institutions, he said, can help reconnect producers and consumers while reducing dependence on fragile centralized supply chains and volatile global markets.In Sri Lanka, cooperative structures historically played an important role in rural development and agricultural distribution, though many weakened over time amid market liberalization and institutional decline.

Reviving such models, Kadirgamar said, could support local production while strengthening accountability and participation.“To rebuild the economy, citizens and policymakers must rethink how economic policies are made and form coalitions demanding equality, participation and universal rights,” he said.

He views the Human Rights Economy not simply as a new policy language but as a fundamental departure from the trajectory of recent decades.“That’s the context in which I understand the idea of a human rights economy,” he said. “A new framework, but one that has to completely shift from the path we have been on.”

Sri Lanka’s experience is increasingly cited in international discussions about debt, austerity and social rights, particularly as many developing economies face pressure to implement fiscal consolidation measures while managing inflation, debt servicing and weakened welfare systems.

Critics of austerity argue that reducing spending on health, education and food protection during economic recovery often deepens long-term inequality and undermines social stability, even when such measures are framed as necessary for macroeconomic reform.

Supporters of fiscal restructuring, however, argue that restoring financial credibility is essential for long-term recovery and investor confidence, especially after sovereign default.The tension between these approaches has become central to Sri Lanka’s policy debate.

The issue is also being examined through the United Nations-backed podcast series “Economies That Work for All,” produced by UN Human Rights and the UN System Staff College’s Knowledge Centre for Sustainable Development.

The series explores how human rights principles can be integrated into economic systems to support progress toward the 2030 Agenda for Sustainable Development.UN Human Rights Chief Volker Türk has also spoken publicly about the need for rights-based economic models, particularly in countries facing sovereign debt burdens and widening inequality.

For Sri Lanka, the debate is no longer theoretical. With millions facing nutritional insecurity and public institutions under visible pressure, the question of whether recovery should be measured by fiscal balance sheets or by human well-being is becoming increasingly urgent.

What emerges from that choice may shape not only the country’s economic future, but the social contract that defines it.

The three nations signed the pact for the hub during Indian Prime Minister Narendra Modi’s visit to Sri Lanka, the first by a global leader since Sri Lankan President Anura Kumara Dissanayake took office in September.

New Delhi and Colombo have worked to deepen ties as India’s southern neighbour recovers from a severe financial crisis triggered in 2022, during which India provided $4 billion in financial assistance.

Saturday’s agreement boosts New Delhi’s competition with China, whose state energy firm Sinopec (600028.SS) has signed a deal to build a $3.2-billion oil refinery in Sri Lanka’s southern port city of Hambantota.

The energy hub in the strategically important city of Trincomalee, a natural harbour in the Sri Lanka’s east, will involve construction of a multi-product pipeline and may include using a World War Two tank farm partly held by the Sri Lankan subsidiary of Indian Oil Corp (IOC.NS), Indian Foreign Secretary Vikram Misri told reporters in Colombo.

“The UAE is a strategic partner for India in the energy space and therefore was an ideal partner for this exercise that is being done for the first time in the region,” Misri said. “The exact contours of UAE’s role will be elaborated once the business to business discussions kick off.”

The three nations will next choose business entities that will consider the financing and feasibility of projects for the hub, he said.

Modi also inaugurated a $100 million solar power project, a joint venture between Ceylon Electricity Board and India’s National Thermal Power Corp (NTPC.NS).

India and Sri Lanka also concluded their debt restructuring process, Foreign Secretary Misri said. Sri Lanka owes about $1.36 billion in loans to EXIM Bank of India and State Bank of India, according to Sri Lanka Finance Ministry data.

Colombo kicked off debt restructuring talks after it defaulted on its debt in May 2022, signing a preliminary deal with bilateral creditors Japan, India and China last June.

India and Sri Lanka also signed pacts on power grid connectivity, digitalisation, security and healthcare.

The complaint underscores rising worries that a lack of visibility for private creditors around debt deals between indebted countries and their official creditors could derail or delay those nations’ efforts to finalise restructuring.

Sri Lanka and a group of its creditor nations, including Japan, France and India, on Wednesday reached an agreement in principle on a debt rework of $5.9 billion of outstanding public debt. That followed a deal between the country and the Export-Import Bank of China in October on about $4.2 billion of loans.

But the bondholder group, which represents creditors holding some of the country’s $12 billion of outstanding bonds, said a lack of transparency between public and private creditors was making it more difficult for them to strike a deal with Sri Lanka that was compliant with IMF rules and that provided “fair and equitable” debt treatment.

“The group finds it regrettable that there remains such a significant lack of transparency on the part of official sector creditors despite the group’s efforts so far to act as a constructive counterparty,” the Ad Hoc Group of Bondholders said in an emailed statement.

Last week, objections from official creditors derailed an agreement in principle between Zambia and its bondholders to restructure the African nation’s international debt. The group of Zambia’s bilateral creditors, including France, China and India, said the terms of that proposed deal were not comparable to the relief official creditors offered.

Zambia, as a low-income nation, is reworking its debt under the G-20-designed Common Framework, which makes its process slightly more rigid than Sri Lanka’s. But investors and experts said the issues around lack of information sharing was making it tough for all private lenders to craft debt reworks that public creditors deem comparable to their own offerings.

“It’s possibly more problematic than it was designed to be in terms of actually being able to achieve these debt renegotiations,” Robert Simpson of Pictet Asset Management said.

“We saw it with Zambia, that, you know, once the details are out, one creditor group actually can put a spanner in the works in terms of the entire process.”

The Sri Lanka Ad Hoc Group of bondholders said it remained committed to reaching an agreement with the Sri Lankan authorities as quickly as possible to find a sustainable solution to the country’s international bond debt challenges.

The Ad Hoc Group is advised by Rothschild & Co on the financial side and by White & Case LLP on legal matters.

Battling its worst financial crisis in decades, the Indian Ocean nation had been trying since last year to strike restructuring deals with creditors after record low foreign exchange reserves led to a default on foreign debt in May 2022.

Wednesday’s in-principle deal comes about a month after Sri Lanka’s pact with the Export-Import Bank of China covering about $4.2 billion of outstanding debt, while clearing the IMF review could trigger a second tranche of about $334 million in funds.

Sri Lanka and the IMF clinched the staff-level agreement on the first review of the four-year extended fund facility arrangement in October, after a month’s delay.

The second tranche will be disbursed once the IMF’s executive board clears the review.

“These understandings pave the way for the IMF executive board to consider completion of the first review,” Peter Breuer, the IMF’s mission chief for Sri Lanka, said in a statement.

“We look forward to the executive board taking up this review by mid-December and the continuation of our productive collaboration with Sri Lanka.”

Sri Lankan authorities did not immediately respond to a request for comment on the IMF statement.

The finance ministry said the deal with the creditor panel covered about $5.9 billion of outstanding public debt, consisting of a mix of long-term maturity extension and reduction in interest rates.

Japan, together with France and India, co-chairs the committee of 15 nations. But Sri Lanka’s largest bilateral creditor, China, has not joined as a formal member.

Since locking down the IMF bailout of $2.9 billion in March, Sri Lanka has managed to partly stabilise its economy, bring down runaway inflation and rebuild currency reserves.

Finance ministry data shows external debt of $36.6 billion at the end of June. Once the debt restructuring is completed, Sri Lanka hopes to cut its overall debt by $16.9 billion.

After receiving the IMF money, Sri Lanka could get further funding from the Asian Development Bank and the World Bank, taking the total to about $900 million, the central bank governor, P. Nandalal Weerasinghe, said last week.

Sri Lanka’s dollar bond maturing in July 2026 was up 0.28 cents at 51.53 cents by 0500 GMT, Tradeweb data showed. Wednesday’s rise of 1.19 cents was its largest single-day gain in more than a month.

Stock market reaction to the IMF statement was muted, however, with the benchmark index climbing 0.67% when trading opened.

The finance ministry said it would next focus on striking similar deals with other bilateral creditors for debt amounting to $274 million and seek pacts with bondholders who have the bulk of its $12.5 billion of international sovereign bonds.

A debt restructuring proposal by private creditors in October did not get a favourable response from the finance ministry, which said it had “serious reservations” about the proposed macro-linked bonds.

Sri Lanka, mired in its worst financial crisis in decades, has been trying to reach restructuring deals with creditors since last year, having being forced to default on its foreign debt in May 2022 after its foreign exchange reserves dwindled to record lows.

“Sri Lanka has been informed of an agreement,” the source, who did not want to be identified, said. “It is confirmed that an agreement has been reached with bilateral lenders but we are still waiting on an official letter. We expect it soon.”

The Sri Lanka president’s office and the finance ministry did not immediately respond to requests for comment.

Japan co-chairs the official creditor committee, together with France and India. China is Sri Lanka’s largest bilateral creditor and is an observer in the group, steering clear of joining the group as a formal member.

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There was no immediate reaction from the bilateral creditors.

The agreement comes about a month after the heavily indebted island nation reached a deal with the Export-Import Bank of China (EXIM) covering about $4.2 billion of outstanding debt.

The EXIM deal will help Sri Lanka clear the first review of an International Monetary Fund (MF) bailout, and secure a second IMF funding tranche of about $334 million, the finance ministry has said.

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After receiving IMF approval, Sri Lanka could get further funds from the Asian Development Bank and the World Bank, bringing the total funding to around $900 million, central bank Governor P. Nandalal Weerasinghe said last week.

ADB could provide $200 million as early as next month, the lender’s country director, Takafumi Kadono, told a forum in Colombo on Wednesday. The ADB’s funds are part of a $350 million special policy-based loan that was approved in May to support Sri Lanka.

Sri Lanka’s total external debt is estimated at $36.6 billion, which includes $10.94 billion of bilateral debt, according to latest data released by its finance ministry.

The country also needs to reach an agreement with bondholders who hold the bulk of the island’s $12.5 billion worth of international sovereign bonds.

Sri Lanka’s dollar bond maturing in July 2026 was last up 0.44 cents at 50.50 cents, according to Tradeweb data.

Japan co-chairs this group, together with France and India, which is comprised of 14 nations. China is Sri Lanka’s largest bilateral creditor and has not joined this group as a formal member.

Mired in its worst financial crisis in decades, Sri Lanka has been trying to reach restructuring deals with creditors since last year.

The deal will help Sri Lanka clear the first review of a bailout under the International Monetary Fund (IMF) executive board program by early December, while securing a second IMF tranche of about $334 million.

The agreement with the group of creditor nations came about a month after the debt-ridden island nation reached a deal with the Export-Import Bank of China covering about $4.2 billion of outstanding debt.

President Ranil Wickremesinghe, who is also the island nation’s finance minister, will present the annual budget to parliament at midday.

Wickremesinghe has the tricky task of boosting tax revenue and rationalising spending in the budget while supporting an economic turnaround seen by political pundits as essential to boosting his appeal at presidential elections in 2024.

Authorities have their work cut out as they must meet strict targets set by the International Monetary Fund (IMF) under a $2.9 billion bailout for the island nation, part of which has already been allocated and helped drive a slow recovery in an economy set to contract 2% this year.

The IMF has warned of revenue shortfalls and backed a 12% budget deficit for 2024 under its four-year program.

Sri Lanka’s cabinet approved raising Value Added Tax (VAT) by 3% from Jan. 1 and broaden VAT collection to increase revenue. Wickremesinghe is also expected to outline how the government may implement additional revenue measures including new taxes such as wealth and inheritance taxes proposed as part of the IMF program.

“This budget has not been formulated with short-term political agenda in mind,” said State Minister of Finance Ranjith Siyambalapitiya in a short statement released on Sunday.

“The main focus is to ensure that Sri Lanka will not fall back into crisis and will maintain its recovery path”.

Bondholders and bilateral creditors will also be watching the budget for signals on how closely Sri Lanka will adhere to IMF targets, which include reaching a primary surplus of 2.3% by 2025 and reducing debt to GDP to 95% by 2032.

Sri Lanka’s budget expenditure will exceed a record 6.5 trillion rupees ($19.8 billion) in 2024, an increase of 12% when compared with the previous year, according to the preliminary budget figures.

Interest payments of 2.6 trillion rupees make up more than a third of total spending, while capital expenditure will stay largely unchanged from 2023 at 1.2 trillion rupees.

Sri Lanka’s economy contracted 7.8% last year, forcing it to default on its foreign debt in its worst financial crisis since Independence in 1948.

The nation’s central bank expects growth of 3.3% in 2024 after an economic contraction of 2% this year.

New Delhi topped a real-time list of the world’s most polluted cities compiled by Swiss group IQAir, which put the city’s air quality index (AQI) at 640 in the “hazardous” category on Friday.

Bangladesh cancelled their training on Friday because of the toxic haze, which has blanketed the city where some schools were ordered closed as the AQI plummeted.

The organising Indian cricket board (BCCI) has already banned use of fireworks in post-match celebration in New Delhi and Mumbai.

The governing International Cricket Council (ICC) said it was monitoring the situation in New Delhi.

“We are currently assessing the situation,” an ICC spokesperson said in a statement to Reuters.

“The ICC and our hosts the BCCI take the wellbeing of all participants seriously and are monitoring the air quality in Delhi.

“We are taking expert advice to assess the situation.”

During an India v Sri Lanka test match in New Delhi six years ago, several players vomited on the field, while others struggled with the hazardous air.

Air quality has been abysmal in Mumbai as well and England player Joe Root said it felt like they were “eating the air” in the western Indian city.

India captain Rohit Sharma has also spoken about the worsening air quality.

“It is not ideal and everyone knows that,” Rohit said on Wednesday worried about its impact especially on children.

“Obviously it is important that they get to live without any fear,” Rohit said.

“Every time I get to speak outside of cricket, or not discussing cricket, I always talk about this. We have to look after our future generations.”

Wickremesinghe took office in July last year, after a popular uprising, brought on by an economic meltdown, had forced his predecessor out of power. His Oct. 15-19 visit to Beijing will be his first to China since then.

Wickremesinghe, who is also finance minister, has been leading Sri Lanka’s push to manage its heavy debt and keep funds flowing from a $2.9 billion International Monetary Fund (IMF) programme.

He will attend a Belt and Road Forum in Beijing that would mark the 10th anniversary of the initiative championed by China’s President Xi Jinping to develop global infrastructure and energy networks.

Wickremesinghe is expected to meet Xi on the sidelines of the forum, said the source who declined to be named as he was not authorised to speak with the media. The Sri Lankan leader could also meet China’s finance and foreign ministers, the source added.

The president’s media office and Sri Lankan foreign ministry did not immediately respond to requests for comment.

Sri Lanka owes Chinese lenders – bilateral and commercial – around $7 billion.

It reached an agreement with the Export-Import Bank of China on Thursday covering about $4.2 billion of outstanding debt but is still working with other key bilateral creditors including Japan and India on reaching a debt restructuring plan.

Sri Lanka defaulted on its foreign debt in May last year after its dollar reserves fell to a point where the island nation of 22 million people could no longer pay for essential imports like fuel and medicine.

Sri Lanka needs to reach agreements with creditors to push forward its first review of the IMF programme, which will release a second tranche of about $334 million. The first tranche was released in March.

The country has been a key receiver of loans under China’s Belt and Road infrastructure drive, helping it to build highways, a port, an airport and a coal power plant.