Tuesday, September 27, 2022

Sri Lanka facing worst economic crisis in decades

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Sri Lanka is facing one of its greatest economic crises in more than seven decades, as successive administrations in the island country have neglected sovereign debts to Sri Lanka, with China serving as a significant lender.
It has succumbed to Chinese foreign investment with the expectation of improving infrastructure, increasing employment, income, and economic stability, and therefore raising the standard of living for the general public. They did, however, reject repeated warnings about China’s ulterior goals of keeping them indebted and reliant for years. The nation has foreign debt commitments of roughly USD 7 billion in 2022, including a USD 1 billion bond payback in July 2021.

After the conflict with the LTTE, Sri Lanka acquired a “friend” in China. China’s footprints in Sri Lanka may be seen in infrastructure projects such as bridges, roads, railroads, ports, and airports, as well as promises to construct special economic zones (SEZ), oil refineries, industrial towns, LNG power plants, and so on.
However, the eclipse of indigenous innovation reduced Sri Lankans to spectators as the country became more reliant on China.
Despite massive Chinese investments in Sri Lanka over the years, the nation is experiencing one of the greatest economic crises in its history, with diminishing foreign reserves, massive foreign debt, and debt servicing commitments. The crisis has finally reached the average man’s nerves, with a lack of food, fertiliser, gasoline, and power, as well as spiralling costs.

Recognizing the serious political consequences of the present situation, President Gotabaya Rajapaksa asked Chinese Foreign Minister Wang Yi to restructure loan repayments during his January visit to Sri Lanka. Wang’s visit comes after China-Sri Lanka ties deteriorated following a recent spat over tainted organic fertiliser sent to Sri Lanka.
Concerns have been raised about China’s highly insular and inward-looking investment approach, which has seen little engagement from Sri Lankans. The present issues highlight China’s incapacity to develop long-term employment and revenue creation in the island country, with minimal influence on the lives and livelihoods of ordinary people.

Furthermore, Chinese investments did not generate sufficient currency inflows to enable the Sri Lankan government to fulfil its obligations. Despite China’s denials, structural imbalances in bilateral trade, investment, growing debt, and interest requirements are hot topics among the intelligentsia, media, and even the general public.
Since the 1980s, the Sri Lankan government has adjusted its foreign investment regulations in order to attract international investment as part of its liberalisation programme.
China benefited from generous tariff exemptions for massive imports from China for infrastructure projects.

The amount of duty exemptions awarded to China throughout the years, from the development of Hambantota port in November 2010 to the reclamation of land for the Colombo Port City project in 2020, cannot compare to the advantages accrued to the ordinary people of Sri Lanka.
The magnitude of the benefits obtained by Sri Lanka’s political elites, on the other hand, is a well-kept secret.
Despite China’s attempts to eliminate Buddhism in China and force Tibetans to seek sanctuary in neighbouring countries, China effectively recruited Buddhist clergy and arranged expensive tours to China to generate public sentiment in favour of Chinese investments and imprints in Sri Lanka.

Local Sri Lankans have lost their jobs as a result of Chinese investment projects being implemented primarily through state-owned Chinese enterprises and huge numbers of Chinese specialists and technicians being deployed.
The irony is that trade unions failed to raise a loud enough voice in support of their allegation of job losses from these projects.
Following the cancellation of joint venture agreements with Japan and India for the development of the East Container Terminal (ECT) due to trade union protests, China made another attempt by excluding Japan from the project, its largest development partner in Sri Lanka, while media attention was diverted to the issue between Sri Lanka and India.

Later, the work on ECT was delegated to China Harbour Engineering Company and its local partners, Access Engineering of Sri Lanka. Rajapaksa blamed the failure to repay the port debt on the former UNP government’s decision to lease Hambantota port to a Chinese business for 99 years. However, the Rajapaksa administration enacted the Colombo Port City Commission (CPCC) law in May of last year, providing Chinese experts/officials significant involvement in its governing body.
It also assured that no Parliamentary examination was conducted, demonstrating China’s considerable sway over Rajapaksa.

Given the little trickle-down impact of Chinese investment, a strong sense of discontent among Sri Lankans cannot be ruled out. Meanwhile, a Chinese firm, CITS Overseas Economic Cooperation Co Ltd, recently funded the establishment of a TikTok account for the Sri Lankan Embassy in Beijing, in the hopes of advancing Sino-Sri Lanka ties.
China is eager to avoid a situation similar to that of Pakistan in Sri Lanka. Residents in Balochistan organised large-scale protests against CPEC, with cries such as “Gwadar Ko Haq Do” (Gwadar’s Rights), when CPEC failed to provide work for locals.

Given the current situation and the lack of actual help from China, Sri Lanka appears to be reconsidering the extent to which it can rely on China.
Due to arbitration threats and likely commitments, Rajapaksas will find it difficult to deny China its pledged area in Sri Lanka. It is an economic annexation of a sovereign country, not only a debt trap.

However, Rajapaksas seem to be seeking out for options to escape out of China’s shadow in the premise of balancing relations with big nations.

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