Sri Lanka, the First Asian country to become the Victim of China’s Debt Trap

Sri Lanka, the First Asian country to become the Victim of China’s Debt Trap

Sri Lanka

By Manish Sharma

(Post Card) — Sri Lanka has been crippled under a severe debt problem. In last decade, it has invested Billions of Dollars in building huge Infrastructure and most of the projects haven’t yet produced any adequate returns. Sri Lankan Government is now struggling to make payments and hence facing a severe Debt Crunch.

Sri Lanka’s total debt stands at $64bn. About whooping 95% of all government revenues go towards debt repayment. China’s debt is 8 Billion Dollars. Many local citizens feel the country is being sold to the Chinese.

The Problem is that money borrowed has been seemingly squandered on infrastructure that shows no sign of turning a profit, which is even more damaging for Sri Lankan Economy.

What’s the actual issue?

Sri Lanka availed Easy Loans from China in order to build infrastructure across the Nation. China which offers easy loans to several countries, but the rates are highly commercial.

China is using this tactic to fix Nations into its trap. First of all it fill the market of any targeted country with its Cheap Stuff. This is a very easy strategy to bulldoze the local manufacturing and other sectors. China also provides easy loans to these Nations to build Infrastructure.

China has built Ports, Airports and big Highways but it always prefer to give contracts to its own companies. The same happened in Sri Lanka as well. All the ports and Airports have been constructed by Chinese Companies only.

China has recently constructed Hambantota Port and Mattala InternationalAirport. However it seems no proper Feasibility study was done before starting these projects. There are barely any traffic on these two projects and considering their higher cost of construction, these 2 Projects have been declared Unaffordable.

The initial vision for Hambantota port was that it would bring more ships to Sri Lanka, and in a way ease pressure on the Colombo port. Also Sri Lanka is located on the sea route that sees oil shipments travel from the Middle East, making energy security a key reason China was keen to invest.

The Port rarely get a Ship in couple of days, and  a port that cost more than $1bn (£770m), that is just not enough business. Same case is with the Mattala InternationalAirport. There are hardly any International flights landed on this Airport and even the domestic flights are very rare, which is making this extremely costly Airport an unaffordable asset for Sri Lanka.

Then there is a China made State-of-the-art conference center that is barely used, and a cricket stadium now only occasionally rented out for weddings. Both costs few Million Dollars to construct.

What was China’s benefit?

China is flexing its muscles in Indian Ocean. It has created String of Pearls to encircle India. Even these Port and Airport also fits neatly into China’s controversial One Belt, One Road initiative, building road, rail and sea links to boost trade with countries around the world. It also provides a Strategic Point to counter India during any skirmish in future.

What’s the EXIT route for Sri Lanka?

Now Sri Lanka is struggling to repay that money, and so has signed an agreement to give a Chinese firm a stake in the port as a way of paying down some of that debt. It has offered China debt for equity swaps, which Sri Lanka’s PM Wickremesinghe recently proposed to China’s Ambassador Yi Xianliang. China was offered varying degrees of control over some of Sri Lanka’s biggest infrastructure projects, including Mattala InternationalAirport and portions of the Hambantota deep sea port, and Sri Lanka would receive some debt relief. However China has rejected any such offer.

1 Comment

  1. The problem is very much applicable to many countries. China is doing very good job in building infrastructure at low cost in many developing countries. This has to be encouraged even in the future. But both countries concerned and China have to be very careful about the debt problem that can follow. Debt traps are not useful to any party. But on the whole I appreciate the excellent job being done by the Chinese.

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