Chinese state-owned banks financed Chinese investments in Sri Lanka at high interest rates and without transparency, resulting in heavy indebtedness to Beijing.
Commentary
Sri Lanka’s economy has been transformed into a modern-day semi-colony due to China’s investments and loans, placing its future in the hands of Beijing’s state-owned contractors, bankers, and the International Monetary Fund.
The close ties between Sri Lanka and China began in 2007 when Beijing provided military and diplomatic support to President Mahinda Rajapaksa to combat the Tamil Tigers, leading to a deepening relationship. Chinese investments in prominent Sri Lankan projects like the Hambantota port, Colombo Port City complex, and Mattala Rajapaksa International Airport have further strengthened this bond.
While infrastructure development is essential for economic growth, China’s projects in Sri Lanka were politically motivated to serve Beijing’s strategic interests rather than the local economy’s needs.
These investments failed to promote sustainable growth and resulted in economically unviable projects and excessive costs. Additionally, the loans from Chinese state-owned banks burdened Sri Lanka with high debt levels and lack of transparency.
The country’s debt reached 103 percent of GDP in 2023, with a significant portion owed to China. Rising debt, coupled with fiscal and current account deficits, led Sri Lanka to seek debt relief from the IMF.
Despite agreements to swap loans for equity, Sri Lanka’s dependence on China’s investments has raised concerns about sovereignty and Chinese influence in the region.
To address its balance-of-payments crisis, Sri Lanka secured a loan from the IMF in 2023, subject to stringent conditions that dictate the country’s economic policies.
China’s investments, intended to foster growth, have instead placed Sri Lanka in a challenging position, relying on external entities like the IMF and China for survival.
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