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DNA Explainer: How China's projects destroyed Sri Lankan economy

Sri Lanka has foreign debt obligations of around USD 7 billion in 2022, including prepayment of bonds worth USD 1 billion in July 2021.

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The island nation which was once abuzz with tourists, where people enjoyed watching cricket, beautiful beaches attracted foreign visitors, today Sri Lanka is completely deserted. Airports are lying vacant, with neither planes nor passengers. There is no one to dine in the revolving restaurant and the ports are deeply indebted. 

These airports, ports, revolving restaurant were built from the loan which the Sri Lankan government took from China. The island nation succumbed to Chinese foreign investment with the hope for better infrastructure and greater income generation. But instead of generating income, it is facing an unprecedented economic crisis

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Sri Lanka had borrowed heavily from China to meet the budget shortfall and trade deficit. It spent this amount on non-negotiable infrastructure projects, causing huge losses to public funds. The country has foreign debt obligations of around USD 7 billion in 2022, including prepayment of bonds worth USD 1 billion in July 2021.

After years of taking loans to cover spiralling budget deficits and to finance the imported products needed to keep the island's economy ticking over, it is now in the grip of its worst financial crisis since independence from Great Britain in 1948.

Sri Lanka succumbs to Chinese investment trap

1. The centrepiece of the infrastructure drive was a deep seaport on the world’s busiest east-west shipping lane, which was meant to spur industrial activity. Instead, it has haemorrhaged money from the moment it began operations.

The Hambantota port was unable to service the USD 1.4 billion in Chinese loans rung up to finance its construction, losing USD 300 million in six years. In 2017, a Chinese state-owned company was handed a 99-year lease for the seaport, raising concerns over China's interference in the Indian Ocean.

2. The USD 15.5 million conference centre, built nearby to the Rajapaksa Airport has been largely unused since it opened. This was built with a USD 200 million loan from China, which is so sparingly used that at one point it was unable to cover its electricity bill.

3. In the capital Colombo, there is the Chinese-funded Port City Project, an artificial 665-acre island set up with the aim of becoming a financial hub rivalling Dubai.

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The outcome

Sri Lanka is in deep economic crisis with months of blackouts and acute shortages of food and fuel plaguing its 22 million people.

There is a huge shortage of essential items like petrol-diesel and LPG cylinders along with most food items like milk and rice.

China is the Sri Lankan government's biggest bilateral lender and owns at least 10% of its USD 51 billion external debt.

International sovereign bonds, Asian Development Bank, China and Japan have a large share in Sri Lanka’s foreign debt. 

China has turned its back on Sri Lanka in times of trouble. It is not ready to give any concession in the terms of the loan.

People are taking to the streets and demanding resignation from the government. Despite the resignation of Mahinda Rajapaksa protests are on.

In the midst of this development, the protesters were attacked by supporters of Mahinda Rajapaksa and it turned into fierce violence.

Due to this, there were incidents of violence in Colombo and many cities of the country, in which 8 people have been killed and hundreds injured.

Chinese Ambassador Qi Zhenhong told reporters last month that China had helped Sri Lanka in the best it could.

China had tried its best that Sri Lanka should not default, but Sri Lanka went to the IMF and it defaulted, he said.

(With Agency Inputs)

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