China’s state-run Global Times published an editorial piece on Monday in which it attempted to deflect Beijing’s share of responsibility for Sri Lanka’s current economic crisis, caused in part by Colombo’s recent decision to default on its massive foreign debt, including a large amount owed to China.
Arguing that China’s government was not to blame for Sri Lanka’s financial turmoil, the newspaper’s editors wrote on July 11:
Many research reports have repeatedly demonstrated that Sri Lanka’s current debt crisis is not directly related to Chinese-funded infrastructure investment. Bilateral foreign debt to China only accounts for 10 percent of Sri Lanka’s total outstanding foreign debt.
Western countries’ commercial creditors and multilateral financial institutions are responsible for Sri Lanka’s foreign debt. They sold the debt to so-called vulture funds, which really exploited Sri Lanka’s every penny. Therefore, discrediting China by accusing it of digging of the “debt trap” and even attacking the Belt and Road Initiative is not grounded.
The Chinese Communist Party-run Global Times referred to Beijing’s Belt and Road Initiative (BRI). The program provides Chinese government-funded loans to developing or lower-income nations so that they may build new infrastructure projects. Observers have criticized BRI loans for their propensity to push economically disadvantaged nations further into debt to Beijing. This predicament, observers argue, not only traps BRI participants in a vicious debt cycle but also makes their governments vulnerable to exploitation by China’s ruling Communist Party. BRI projects span the globe and are currently found across Southeast Asia, Central Asia, the Middle East, Europe, Latin America, and Africa.
A Chinese state-owned firm seized control of Sri Lanka’s Hambantota Port in late 2017 after Sri Lanka’s government defaulted on BRI loans from Beijing to develop the port. Colombo ceded physical control of the port to Beijing on a 99-year lease. The contract included a provision to extend the lease for an additional 99 years. Colombo’s decision to hand over the strategic Indian Ocean port to China alarmed observers at the time, many of whom worried about the deal’s implications for Sri Lankan sovereignty.
Sri Lankan President Gotabaya Rajapaksa in January asked Beijing to restructure payments for about $5 billion borrowed by Colombo from Beijing under the BRI in recent years.
“The president pointed out that it would be a great relief to the country if attention could be paid on restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of the Covid-19 [Chinese coronavirus] pandemic,” Rajapaksa’s office said on January 9 after he met with Chinese Foreign Minister Wang Yi.
The request served as a harbinger of Sri Lanka’s then-impending financial crisis, which began festering in January after Colombo detected a shortage of foreign currency reserves. Sri Lanka is an island nation off India’s southernmost coast that relies almost entirely on foreign currency reserves to purchase and import its most basic goods, including food, fuel, and medicine. Sri Lanka’s vital goods began drying up in early March alongside its stores of foreign currency reserves. This led to dire outages of food and fuel in subsequent weeks.
The lack of fuel caused rolling blackouts that plagued the small country and plunged its populace into severe unrest. The resultant political turmoil caused Sri Lankan President Gotabaya Rajapaksa to announce plans to resign on July 11.
Sri Lanka announced plans to default on its foreign debt on April 12. It requested a financial bailout from the International Monetary Fund (IMF) at the time and is currently awaiting a response from the global lender.
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