The crisis has also opened a window for India, which provided Sri Lanka with financial relief shortly before a $500 million bond matured to push back against Chinese influence in the Indian Ocean region.
Sri Lanka’s central bank governor Ajit Nivard Cabral said on his official Twitter account that the country had repaid the bond, which matured on Tuesday. It was the first major tranche of sovereign-debt repayments totaling $4.5 billion in 2022.
But about two-thirds of government revenue is already going toward interest payments, President Gotabaya Rajapaksa warned in a speech to parliament, adding that the country had insufficient foreign exchange reserves to pay for essential imports.
That warning follows Chinese Foreign Minister Wang Yi’s appeal to Beijing last week to restructure its debt, offer concessional trade terms and lift COVID-related restrictions on Chinese tourists visiting Sri Lanka.
It came after unusual criticism from within Sri Lanka’s ruling party over China’s borrowing for a series of major infrastructure projects, including a $13 billion maritime trading center in the capital Colombo and a port in Hambantota, the home constituency of the Rajapaksa family and Airport is included. ,
Earlier this month, Vijayadas Rajapaksa, a member of parliament in the ruling party, wrote a six-page letter addressed to Chinese President Xi Jinping, calling on Beijing to push Sri Lanka into a debt trap for expanding China’s sphere of political influence. was accused of.
Mr Rajapaksa wrote in his letter, “It is clearly visible that your friendship with us is no longer genuine and clear, instead you are using our ties to achieve your ambition to become a world power with the help of our innocent people.” To put lives at stake.”
China’s foreign ministry did not respond to a request for comment.
In a regular news briefing last week, Chinese Foreign Ministry spokesman Wang Wenbin said that China has always tried its best to provide assistance for Sri Lanka’s economic and social development and will continue to do so in the future.
India’s External Affairs Minister, Subrahmanyam Jaishankar on Saturday said that India will continue to support Sri Lanka in every possible way with the economic and other challenges posed by the coronavirus pandemic. He said the two countries are discussing Indian debt totaling $1.5 billion for essential commodities, fuel, food and medicine.
Recent Indian investments in Sri Lanka include a deal for India’s Adani Group to develop and operate a container terminal in Colombo and a subsidiary of the state-run Indian Oil Corporation to operate 14 oil storage tanks in the eastern port city of Trincomalee. includes an agreement.
A spokesman for India’s foreign ministry said he had no further comment.
Similar to Japan, Sri Lanka had about $3.5 billion in debt from China as of the end of 2020, excluding loans to state enterprises, according to data from Sri Lanka’s central bank. The largest share of Sri Lanka’s debt – about 36% – is owed through international sovereign bonds.
While China accounts for about 10% of Sri Lanka’s total debt, it is often cited by US officials and some scholars as evidence of how Beijing has been able to build ports, railways, pipelines and other infrastructure across Asia. It is creating debt crisis through its Belt and Road Initiative. and beyond.
In a prime example, the Sri Lankan government was unable to repay the Chinese loan for the port at Hambantota that China helped build. To settle the debt, it granted a 99-year lease on the facility to a Chinese state company.
Beijing denies any ulterior motives and says the projects promote development and benefit all parties.
Sri Lanka’s debt problems have escalated over the past two years, as both its major foreign exchange earners – tourism and remittances from abroad – were hit hard by the coronavirus pandemic.
Facing decade-high inflation, a weak currency and rising import costs, Mr. Rajapaksa declared an economic emergency in September to oversee the supply of basic staples such as rice and sugar, sold at government-guaranteed prices. appointed. Since November, ratings firms Moody’s, Fitch and Standard & Poor’s have further downgraded Sri Lanka’s sovereign credit score to junk territory.
According to Fitch, Sri Lanka’s foreign exchange reserves were reduced to $1.6 billion in November, enough to cover less than a month’s worth of imports.
Seeking funds to pay off debt and boost its foreign exchange reserves, Sri Lanka said in December that it would buy Iran oil with $5 million a month worth of tea as a means of conserving foreign exchange. Will try to pay An agreement with India last week provided some relief through the Asian Clearing Union of $500 million and a $400 million currency swap.
“The foreign exchange situation has become so critical that [Sri Lanka] WA Wijewardene, former deputy governor of Sri Lanka’s central bank, said there is not enough reserves to import essential imports such as fuel, medicines, food items and industrial raw materials.
Some top Sri Lankan economists have called on the government to postpone repayments until it restructures its debt, saying the country’s dwindling reserves are used to secure supplies of essential commodities for its citizens, which are facing rolling power outages and shortage of imported essential commodities. As milk powder, LPG and fuel.
“If this is not done, there will be shortage due to increase in prices and long queues,” said Mr. Vijewardene. “They will ultimately result in social and political disorder.”
In his address to Parliament, Mr Rajapaksa said the crisis was the climax of a problem that previous governments had failed to solve and the country would rely on its current strategy to boost tourism, exports and foreign investment.
Mr. Rajapaksa also suggested that he would not deviate from Chinese investment, adding that Sri Lanka, as a small country with limited natural resources, is dependent on foreign investment for growth and job creation.
“If someone acts to misinterpret foreign investment for purely political reasons and to create a wrong opinion among the people, then such” [a] The individual is not doing any good for the country,” Mr Rajapaksa said without specifying any country or individuals.
Deep Pal, a visiting fellow at the Carnegie Endowment for International Peace, said that although he did not believe Sri Lanka was caught in a debt trap, the problem was compounded by the fact that other major regional players like India would hesitate to bail out. Sri Lanka if it feels that the money will go directly to service the Chinese debt.
“The situation is not going to improve anytime soon for Sri Lanka. In the absence of the other players, it really allows China to get involved more significantly,” he said.
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,