At present, Sri Lanka is mired in the worst economic and financial crisis since independence in 1948. In addition to the serious damage to the income of the world's second largest tea exporter and a major tourist country due to the epidemic and the Russian-Ukrainian war, the country is also deeply caught in the debt trap of the CCP's " Belt and Road Initiative " . Of the total foreign debt of 51 billion US dollars, about 11 billion owed to China.
On May 9, Sri Lankan Prime Minister Mahinda Rajapaksa announced her resignation after violent clashes between his supporters and opponents. Sri Lanka is deeply caught in the debt trap of the CCP's " Belt and Road " , coupled with the impact of the epidemic and the Russian-Ukrainian war, its economy has collapsed , and the whole country has fallen into chaos.
Sri Lankan Finance Minister Ali Sabry warned parliament last week that due to severe shocks such as the epidemic, soaring oil prices and government tax cuts, Sri Lanka has less than $50 million in foreign currency reserves left at its disposal. He said about $3 billion in foreign aid would be needed over the next six months.
Sabri said successive governments have always repaid old loans with new loans, never used loans to invest and used proceeds to repay loans, which is why Sri Lanka's debt has increased to $51 billion. He warned that the country would have to endure unprecedented economic hardship for at least two years.
For several weeks, widespread power outages and severe shortages of daily necessities such as fuel, medicines and food have made Sri Lankans miserable. Commodity prices doubled on average, and inflation rose to an unprecedented 19 percent. In response to the tsunami-like economic collapse , Sri Lanka's central bank raised interest rates by a one-off 700 points, borrowing rates to 14.5% and deposit rates to 13.5%.
Faced with the predicament, Sri Lankans took to the streets to demand the resignation of the "family government" led by President Gotabaya Rajapaksa. From March 31 to the present, there have been nationwide protests almost every day. In order to quell public anger, the government announced that all 26 cabinet ministers except the president and the prime minister resigned, and 41 members of parliament resigned from the ruling party.
None of this will help Sri Lanka's collapsing economy.
About 180 people were injured and five people were killed, including a member of Congress, in the massive violence that broke out on May 9. After the violence, Sri Lankan Prime Minister Mahinda Rajapaksa announced her resignation as prime minister. Meanwhile, authorities announced an indefinite curfew across the country.
The people have been calling for the resignation of the Rajapaksa family, who has dominated the political arena for nearly 20 years, but according to the Prime Minister's resignation statement, his resignation was only to preserve his younger brother's presidency.
"One Belt One Road" brings disaster to Sri Lanka
Since Xi Jinping came to power, the CCP has engaged in a double expansion of politics and economy, known as the "Belt and Road" project. The project provides huge loans to developing countries to build railways, highways, bridges, communications, docks, schools, hospitals and other infrastructure in the country, and at the same time buys and bribes government officials in large quantities, exporting the ideology and influence of the CCP.
According to a report released on September 29, 2020 by the AidData research laboratory of the College of William and Mary, the CCP has so far 13,427 projects in 165 countries worth $843 billion.
In the face of short-term benefits, many countries participating in the "Belt and Road" were still grateful to the CCP. Those officials who took advantage also gave the green light for the Belt and Road Initiative.
Sri Lanka has borrowed as much as US$3.5 billion from China in the Belt and Road Initiative, including:
Sri Lanka Colombo - Ratnapura Highway Project (constructed by several Chinese companies);
Central Sri Lanka Expressway Project (constructed by China 20th Metallurgical Group);
Sri Lanka Capital Colombo International Airport Aviation Fuel Reconstruction and Expansion Project (China Chemical Engineering Group 14th Company);
Sri Lanka Southern Railway Phase I Project (contracted by the CCP with loans and undertaken by China National Machinery Import & Export Corporation);
Construction Project of Agricultural Industry and Agricultural Economic Center in Polonnaruwa District (constructed by China Hydropower 14th Bureau);
Sri Lanka Water supply project in the former war zone (consortium formed by China Machinery Engineering Corporation and Sri Lanka Business Promotion Partnership, jointly constructed);
Sri Lanka kidney disease hospital project (constructed with the aid of the Chinese Communist Party);
Colombo construction of three high-rise buildings (China Harbour Engineering Co., Ltd. Investment);
Sri Lanka National Hospital Outpatient Building Project (constructed with the aid of the Communist Party of China);
Colombo Port City Project (invested and developed by China Communications Construction Co., Ltd.
);
Sri Lanka K Dam Project (China Water Resources and Hydropower 14th Engineering Bureau as the general contractor);
Sri Lanka Minipe Dam Elevation Project (constructed by China Gezhouba Group Co., Ltd.).
Ray Washburne, chairman and CEO of the official "Overseas Private Investment Corporation" in the United States,
once pointed out that the "Belt and Road" is not helping those countries, but plundering their assets. By investing in other countries’ infrastructure, the CCP purposefully incurs debts on recipient countries, and then seeks to obtain their “rare earths, minerals, etc., as collateral for borrowing.”
In 2017, due to insolvency, the Sri Lankan government subleased 15,000 acres of land in and around the strategic southern port of Hambantota to Beijing for 99 years.
Beijing does not lend a hand at a critical moment
At present, China is Sri Lanka's largest creditor country. Of the $51 billion in foreign debts that the country cannot repay, 11 billion is owed to China.
Facing a severe political and economic crisis, Sri Lanka offered the CCP US$2.5 billion in emergency aid, but the CCP only responded by providing US$31 million in emergency humanitarian aid.
As early as the beginning of this year, the Sri Lankan government has been openly requesting the CCP for bailout funds, and has met with the CCP’s foreign minister Wang Yi, hoping to “borrow the new to repay the old” or to postpone the payment deadline. More responses than just proposing debt refinancing options to Sri Lanka.
Sri Lankan Information Minister Nalaka Godahewa said all discussions, including $31 million in emergency humanitarian aid, were still at an early stage.
According to Bloomberg News, Gulbin Sultana, an associate researcher at India's Manohar Parrikar Institute for Defense Studies and Analyses, believes that China's reluctance to help Sri Lanka is because it does not want to have it for others. Sri Lanka is now in a disadvantageous position, setting a precedent for a country with a lot of debt, and it is a good time to achieve a "debt-to-equity swap" to deepen control of the country.
IMF bailout talks face complications
Last month (April) Sri Lanka turned to the International Monetary Fund (IMF) after unsuccessfully asking Beijing for help in guaranteeing $2.5 billion in credit.
Citigroup Global Markets said Sri Lanka's prime minister's resignation has created political instability, with the country facing complications and delays in aid talks with the IMF, Citigroup Global Markets said.
The bankrupt Sri Lankan government has approached institutions including the IMF and the World Bank since the beginning of this year to negotiate aid lending, but the IMF requires the Sri Lankan government to propose a sustainable debt plan before it will consider borrowing.
Masahiro Nozaki, who heads the IMF's Sri Lanka program, said the IMF and Sri Lanka started a new round of technical discussions from May 9 to 23. “As Sri Lanka’s debt is assessed as unsustainable (not repayable through simple macroeconomic adjustments), approval of IMF financing, including through the Rapid Financing Facility (RFI), will require adequate assurances to restore debt sustainability. "