The huge projects financed by China that deepened Sri Lanka’s debt

A brand new international airport with no traffic, an inactive conference center or a port ceded to a Chinese company are some of the colossal investments that aggravated the foreign debt of Sri Lanka10% of which contracted with China.

The island, with 22 million inhabitants, it borrowed massively to overcome years of budget and trade deficits. For months, the population has suffered from serious shortages of food, fuel and medicine and blames the president Gotabaya Rajapaksa of this historic crisis.

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On Monday, clashes between supporters of the Rajapaksa and anti-government protesters left five dead and more than 225 injured and forced Mahinda Rajapaksa to resign from his post as prime minister.

During the latter’s time as president (2005-2015), the Hambantota region, the clan’s ancestral fiefdom, benefited from a torrent of investments destined for large infrastructure projects, punctuated by suspicions of corruption.

For the construction of the Mattala Rajapaksa International Airport, China lent the country 200 million dollars but the terminal is so little used that its income is not even enough to cover electricity bills.

An overview of a construction site on land reclaimed from the sea as part of the China-funded project for Port City. (Ishara S. KODIKARA / AFP).

But in 2017, Colombo was unable to pay its $1.4 billion debt to Beijing. for the construction of the deepwater port of Hambantota.

“We were very hopeful when the projects were announced. And in this region things were better”, recalls Dinuka, a local. “But now that doesn’t mean anything. Our children will also continue to pay this debt.”

The port, located on the world’s busiest East-West shipping lane, was supposed to boost industrial activity but recorded losses of $300 million in six years. In the end, the country was forced to cede it to a Chinese company for 99 years.

Sri Lanka’s indebtedness to China as a result of these projects raised concerns among Western countries and India.

“Debted up to the neck”

“Fiscal generosity over several decades and weak governance […] He got us into this quagmire,” Murtaza Jafferjee, president of the Sri Lankan Advocata Institute think tank, told AFP.

Another example: a conference center near the port that cost 15.5 million dollars and that, since its opening, has done nothing but collect dust.

“We are up to our necks in debt,” lamented Krishantha Kulatunga, owner of a small stationery store in Colombo.

His store is near a lotus-shaped skyscraper, the “Lotus Tower”, financed with Chinese funds but which has not been opened to the public.

“How can we be proud of this tower when they leave us begging for food?” asks the merchant, indignantly.

A worker sweeps the street next to burned buses near the official residence of former Sri Lankan Prime Minister Mahinda Rajapaksa. (ISHARA S. KODIKARA / AFP).

“China did what it could”

Chinathe government’s main bilateral lender, owns at least 10% of its foreign debt, valued at 51 million dollars, although analysts believe it is actually much higher.

The government attempted to negotiate the payment schedule with Chinabut Beijing preferred to offer more bilateral loans to repay existing loans.

In the end, Sri Lanka turned to the International Monetary Fund (IMF) last month, much to the chagrin of Beijing, which is likely to be affected by a discount on its loans, like other creditors.

“China did its best to help Sri Lanka avoid default but unfortunately the country went to the IMF and chose default” on April 12, Chinese ambassador Qi Zhenhong said in Colombo last month.

The IMF requires that Sri Lanka restructure its debt before any bailout, and this “surely [tendrá] an impact on future bilateral loans” from Beijing to Colombo, warned the ambassador.

Source: Elcomercio