Sri Lanka Falls Into Politics Of China’s Debt Trap As Financial Crisis Reaches New Heights Khabarhub

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Sri Lanka falls into China’s debt trap politics as financial crisis reaches new heights

KATHMANDU: If a report by Global Strat View, a Washington-based organization, is to be considered, Sri Lanka has fallen into debt due to China-sponsored public investment projects under its Belt and Road Initiative (BIS).

China has disbursed billions of dollars in soft loans to Sri Lanka to become the island country’s fourth-largest lender.

The Global Strat View, citing the example of the Hambantota project, said that “the port developed with significant Chinese funding had no commercial viability, but China persuaded Sri Lanka to proceed with the project.”

And as the port was struggling to grow, China wanted it as collateral, forcing the Lankan government to hand over management to a Chinese company on a 99-year lease in 2017, according to the report.

Despite this, Sri Lanka has also awarded a contract to the China Harbor Engineering Company for the construction of the Eastern Cargo Terminal in Colombo.

Therefore, the Washington-based organization said Sri Lanka needs to rethink seriously to save its economy, which observers say has fallen into China’s debt trap policy.

Lanka’s current financial crisis is leading to a humanitarian crisis that could ultimately push the country into bankruptcy, the report says.

Additionally, the island nation owes China more than $5 billion in debt and even received an additional $1 billion loan last year to help it recover from its financial crisis.

Critics must also say that China’s debt-trap policy is the main cause of Sri Lanka’s financial crisis as inflation hits new highs.

The Sri Lankan government in August last year declared a national economic emergency after a sharp drop in its currency.

The country’s external debt has been increasing since 2014, reaching 41.3% of GDP in 2019, which, in turn, has “heavyly weighed on the country’s debt service”, according to the report.

The country’s foreign exchange reserves are depleting faster and stand at around $1.6 billion, meaning they will barely suffice for a few weeks of imports.

The country also has external debt obligations exceeding $7 billion in 2022, including the repayment of bonds worth $500 million in January and $1 billion in July 2022.

According to the country’s Central Bank, prices have risen dramatically, with the inflation rate dropping from 9.9% in November 2021 to 12.1% at the end of December.

Similarly, during the period, food inflation soared to almost 22%.

China has disbursed billions of dollars in subsidized loans to Sri Lanka, becoming the country’s fourth largest lender.

The other two donors are the Asian Development Bank and Japan.

However, since the Rajapaksa government’s efforts to get too close to Beijing, Sri Lankan interests have been harmed.

Observers should note that the decline in foreign exchange reserves in part for the benefit of infrastructure projects financed by Chinese loans has not been profitable because the presence of China there is to its advantage rather than that of the Sri Lanka.

According to the Center for Global Development, other countries like Kyrgyzstan, Laos, Djibouti, Maldives, Montenegro, Mongolia, Pakistan and Tajikistan are also highly vulnerable to over-indebtedness due to China’s BRI.

Hambantota Port is one of many examples of the debt trap. Even though the port had no commercial viability, China persuaded Colombo to go ahead with the project.

Sri Lanka therefore fell into the trap of China when it was forced to sacrifice the port of Hambantota.

The United States and even India have criticized Chinese projects in Sri Lanka under the debt trap policy.

Meanwhile, another major Chinese-funded development project is Lanka’s second international airport, Mattala International Airport. It is also known as “the emptiest airport in the world”.

Additionally, the island nation owes China more than $5 billion in debt and even received an additional $1 billion loan last year to help it recover from its financial crisis.

Therefore, it is surprising that China tries to wrap its ulterior motives in a benign approach to unsuspecting partners.

According to the Center for Global Development, other countries like Kyrgyzstan, Laos, Djibouti, Maldives, Montenegro, Mongolia, Pakistan and Tajikistan are also highly vulnerable to over-indebtedness due to China’s BRI.

Sad stories and glaring examples of the debt trap have also emerged from countries where China has made economic breakthroughs.

(Sources: Global Strat View, ANI, Ceylan Today)

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