24.7 C
Asia
Friday, February 3, 2023
HomeDiplomacyDebt trap: How China fits into Sri Lanka’s economic crisis

Debt trap: How China fits into Sri Lanka’s economic crisis

China’s funding and operation of Sri Lanka’s Hambantota port has been cited as a warning example of “debt trap diplomacy”, with some even blaming China for the island nation’s economic plunge.

But experts say Sri Lanka’s debt crisis is more complex and China is just one of them, though an important player.

why i wrote this

China may not have caused Sri Lanka’s debt crisis, but recent developments in the Indian Ocean show how unilateral lending can benefit Sri Lanka.

The country’s crisis stems largely from fiscal mismanagement, including persistent budget deficits and meager foreign exchange reserves. Still, China is Sri Lanka’s largest bilateral creditor, accounting for her 20% of Sri Lanka’s debt.

China, in particular, has loaned Sri Lanka $1.26 billion over several years to finance Hambantota Port, which is managed by a state-owned Chinese company. India is concerned about China’s use of the site for military purposes, a concern heightened by the recent docking of a Chinese missile-tracking vessel.

The incident shows that Sri Lanka must increasingly balance its ties with longtime ally India and major creditor China.

Political scientist Deborah Brautigam says, “India and China will go back and forth…in South Asia.” “A small country like Sri Lanka would be just a ping-pong ball.”

China’s financing and operation of Sri Lanka’s Hambantota port, where a Chinese missile tracker docked this week despite objections from the United States and India, was cited as a cautionary example of “debt trap diplomacy.” This is a state-financed strategy. It provides funding to small countries that may not be able to service their debts as a way to increase their geopolitical influence. Some even blame China for the island nation’s plummeting economy. But experts say Sri Lanka’s debt crisis is more complex, and although China is a key player, she is just one of them.

How did Chinese loans contribute to Sri Lanka’s debt crisis?

China is Sri Lanka’s largest bilateral creditor.

why i wrote this

China may not have caused Sri Lanka’s debt crisis, but recent developments in the Indian Ocean show how unilateral lending can benefit Sri Lanka.

As of the end of 2021, Sri Lanka’s total public and publicly guaranteed debt was $35.8 billion. data From Sri Lanka’s Ministry of Finance analyzed by researchers.

Nevertheless, experts say Sri Lanka’s borrowing from China, while important, is not the main cause of its debt crisis. Default recorded its first external debt in May. The country’s largest source of external lending is international sovereign debt, accounting for 36.5% at the end of 2021. These bonds account for an even larger share of Sri Lanka’s 2021 foreign debt service, at 47% compared to China’s 20%.

“The debt crisis is the result of Sri Lanka’s own poor financial management,” said Subhashini Abeysinghe, research director at Verite Research, an independent think tank in Colombo. The government’s inability to generate sufficient revenue, continued budget deficits, tax cuts, and meager foreign exchange reserves all contributed, she explains.

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments