Sputnik News| April 4, 2022 |
The Belt and Road Initiative (BRI) is a series of
overland and maritime connectivity and infrastructure projects being developed
across the globe with the financial backing of China. Nearly 140 countries in
Europe, Asia, and South America have signed up for the BRI so far. Chinese
investments in BRI projects could reach $1.3 trillion by 2027.
A former military intelligence
(MI) specialist in the Indian Army has blamed the "liberal loans"
extended under the Beijing-backed Belt and Road Initiative (BRI), or the One
Belt One Road (OBOR), for worsening the economic crisis in Sri Lanka.
"China's offer of liberal loans
for Sri Lanka's ambitious infrastructure projects, with marginal profitability,
are one of the reasons why the country finds itself saddled with unviable
foreign debt", Colonel R. Hariharan, an expert at the Indian security
think tank Chennai Centre for Chinese Studies (C3S) who served as an
intelligence chief of the Indian Peacekeeping Force (IPKF) to Sri Lanka, told
Sputnik.
At present, the
Colombo International Container Terminal (CICT) is being developed by Beijing's
state-backed China Merchant Port Holdings,
a Hong Kong-headquartered company. Hariharan also highlights that Colombo was
"forced" to award a controlling stake and a 99-year lease in the
Hambantota port to the same Chinese company in 2017 for its inability to repay
a previous debt.
Another
state-backed enterprise, the China Harbour Engineering Company (CHEC), is
developing the state-of-the art Colombo International Financial City on land
reclaimed from the sea near the Sri Lankan capital.
"Servicing these loans is becoming
a big headache of governments across South Asia, be it Sri Lanka, Nepal,
Maldives, or Pakistan", reckons Hariharan. "Other countries like
India and Japan have given aid on concessional terms whereas China's commercial
lending carries higher interest".
Hariharan notes that another drawback of Chinese loans under the BRI relates to the lack of emphasis on empowerment of local communities, who could build economic resilience in times of crisis such as the one Sri Lanka currently faces.
"The Chinese
companies mostly employ Chinese labour. So, in a way, benefits of the project
in the near-term flow back to China. Other countries employ local
contractors", the think tank analyst says.
Estimates of the
Chinese loans as well as sovereign bond payouts owed to China are between 15-20
percent of Colombo's overall foreign liabilities, as per the Indian expert.
While Sri Lanka is
obliged to pay a $1 billion repayment on sovereign bonds in July, debt
repayments to the tune of $7 billion are due at the end of the year. In
comparison, data from Sri Lanka's Central Bank pegged the current foreign
exchange reserves at $2.3 billion, as
reported by Reuters.
Since February,
India has extended two credit lines of
$1 billion and $1.5 billion to Sri Lanka to purchase essential items to help
overcome the crisis. Nearly $1.4 billion has been separately provided by Delhi
since January in the form of current swap and loan deferments.
On the other hand,
Beijing is yet to take a final call on Sri Lanka's debt restructuring request
or an economic assistance package, the Chinese Ambassador to Colombo Qi
Zhenhong said at a press briefing on 21 March.
The request was
made by Sri Lankan President Gotabaya Rajapaksa during Chinese Foreign Minister
Wang Yi's trip to Colombo in January of this year.
Saying that
Beijing may ultimately grant Colombo a "loan package" to help it tide
over its economic difficulties, he expresses concerns about the terms of any
future assistance from Beijing, given Sri Lanka's plummeting attractiveness for
investors.
"Sri Lanka
has been losing the lure of China lately", he says.
'Poor Fiscal
Management' by Sri Lankan Government to Be Blamed as Well
The Indian expert
says that the Sri Lankan government's "poor fiscal management, [alleged]
corruption, and financial indiscipline" were also factors behind the
"huge borrowing" and sent out the wrong signal to investors, thus
compounding the crisis.
Sri Lanka's public
debt rose from 94 percent of GDP in 2019 to 119 percent in 2021, amid dwindling
forex reserves which affected its tourist-reliant economy during the
COVID-induced travel curbs.
Dwindling currency
reserves, ballooning public debt, and current account deficit caused the value
of the Sri Lankan rupee to plunge by more than 36 percent last month, resulting
in runaway inflation.
Lack of fuel
supplies resulted in 10-12-hour power cuts besides shortages of food items,
triggering street protests across the country.
The economic
crisis soon spiralled into a political issue, with
the entire federal cabinet resigning on Sunday.
Only President
Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa haven't stepped down
from their positions, as the country awaits a new cabinet which may comprise
politicians from all of the nation's political factions in a bid to assuage
rising public anger over economic mismanagement.
'China Heavily
Invested Across South Asia Now'
Hariharan says
that it's not only Sri Lanka, but servicing the Chinese loans extended under
the BRI is becoming a problem for other South Asian nations such as Nepal,
Pakistan, and the Maldives, with all of them being part of the BRI.
India has been
critical of the BRI, with Foreign Minister S. Jaishankar in February warning
smaller nations to be careful of "debt-trap" diplomacy. The remarks
were made by Jaishankar during an appearance at the Munich Security Conference.
"Undoubtedly,
China has bigger financial clout than India. But China's BRI commitments are
huge and already it is invested in South Asia for around $60 billion", he
notes.
In Nepal, local
media outlets have been pointing out that none of the nine agreements signed
between Kathmandu and Beijing during Wang Yi's visit last month concerned the
BRI.
"While
stressing the country's economic priority, the prime minister during his
meeting with the Chinese foreign minister and state councillor said that a loan
is not what Nepal prefers at this point and sought more projects from China
under grant assistance", Govinda Pariyar, the publicity chief of Nepali
Prime Minister Sher Bahadur Deuba, quoted the Nepalese leader as
telling Wang.
In the Maldives, around 80 percent of overall debt payments were owed to China, as per 2021 budget data reported by ex-president and current parliamentary speaker Mohamed Nasheed.
Similarly, the
International Monetary Fund (IMF) has said that in the case of Pakistan, a
fifth of its public debt is owed to China, which amounts to around $18.4
billion.
The China-Pakistan
Economic Corridor (CPEC), the flagship project of the BRI, traverses the length
of Pakistan and ends at the port of Gwadar.
During his visit
to Beijing this year, Pakistan's interim Prime Minister Imran Khan is reported
to have requested that Chinese President Xi Jinping roll over debt to the tune of $4.2 billion owing
to Islamabad's inability to service the loans. Reportedly, the request was
agreed to during Wang's trip to Pakistan last month.
Under CPEC,
Beijing has extended loans to develop infrastructure and connectivity projects,
including power plants, highways, and railway lines.
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