China under fire as Sri Lanka teeters on brink of default🇨🇳👎

Truth Hurts

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  • Jun 15, 2013
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    Critics say Beijing is to blame for Sri Lanka’s economic woes and is failing to help solve Colombo's problems

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    Sri Lanka’s Colombo Port City had grand ambitions of creating a modern city-space reminiscent of Dubai - a place for the rich to bring in dollars while largely exempt from tax.

    Construction of the $1.4bn (£1.1bn) project, funded by China, was launched by former president Mahinda Rajapaksa and Xi Jinping in 2014, as part of the Chinese premier’s "Belt and Road" initiative. It was a symbol of Sri Lanka’s lofty visions, and the increasing grip Beijing had over its economy.

    Fast forward eight years and Colombo Port City is still largely a sand bank, while Sri Lanka faces its worst economic crisis since independence in 1948.

    Faced with dwindling foreign reserves and $25bn in foreign debt due for repayment over the next five years, its population of 22m is experiencing severe shortages of food, soaring prices, and rolling 12-hour power cuts. At the start of this month, president Gotabaya Rajpaksha - Mahinda’s brother - declared a state of emergency. It is on the brink of its first debt default.

    “Sri Lanka has basically been left with a choice to be supporting its currency and paying off foreign creditors, or feeding its population,” says Gareth Leather, a senior economist covering Asia at Capital Economics.

    The country has been asking for credit lines, food and energy from friendly nations such as India and China, which have already committed billions of dollars in financial support.

    Last week, however, the International Monetary Fund stepped in, highlighting the battle to reign in the Asian giants’ influence over Sri Lanka. The country announced it was suspending repayment of foreign debt, pending the completion of a loan from the IMF. It hopes to secure a $3bn (£2.7bn) bailout.

    While China has supported the country through several recent crises, and has this time offered billions in credit lines, it seems more hesitant than usual to act.

    “China doesn’t want to give Sri Lanka special concessions, which it would then have to extend to every other country that is in the Belt and Road and suffering difficulties,” says Ganeshan Wignaraja, a Colombo-based senior research associate at the Overseas Development Institute, a think tank.

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    Critics say China is using projects such as Colombo Port City to create a ‘debt trap’ to capture the country as an economic thrall CREDIT: Paula Bronstein/Getty Images

    Critics say Beijing is to blame for Sri Lanka’s issues, which it is now failing to solve, and accuse it of using projects such as Colombo Port City to create a "debt trap" to capture the country as an economic thrall. But debt owed to China is just a fifth of the country’s total, says Leather, showing the problems go deeper.

    https://www.telegraph.co.uk/business/2022/04/15/battle-reduce-chinas-control-sri-lanka-imf-steps/