sSri Lankan Prime Minister Ranil Wickremesinghe accepted That Sri Lanka is in talks with the International Monetary Fund (IMF) on a bailout “as a bankrupt country”.
Sri Lanka is not the only South Asian country facing an economic crisis that has borrowed heavily from China for infrastructure projects, which China described as part of its Belt and Road Initiative (BRI). Nepal, Maldives and Pakistan are also going through economic turmoil.
Ironically, China, which for years offered high-interest loans for infrastructure projects in Sri Lanka, has remained calm during its current crisis. President Gotabaya Rajapaksa – who, along with his brother, former President and Prime Minister Mahinda Rajapaksa, was responsible for Sri Lanka’s massive borrowings from China – recently regretted That the South Asian countries battling the economic crisis are not getting the same attention as before Beijing.
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Rajapaksa was informed of Stating that Sri Lanka was unable to tap a $1.5 billion line of credit from Beijing and their request for a $1 billion loan from Chinese President Xi Jinping to buy essential goods went unanswered. Sri Lanka’s budget deficit is now 13 percent of its GDP and there is less than $2 billion in foreign exchange reserves.
For years, China has planned to besieging India and ousting the United States from South Asia, bribing elites and offering its countries massive loans for grand infrastructure projects. China now faces the prospect of less influence in the region where its footprint was growing a few years ago.
Chinese officials are trying to get out of the political fallout of the economic debacle grow up Anti-American rhetoric. The crisis in Sri Lanka and that of other countries around it shows that China’s lending policies are based less on economic viability and more on giving China a strategic advantage. Sri Lanka – Model for Countries Like Ever Singapore – Is default Interest payments on multimillion-dollar debt and fuel and food shortages are being faced. The Sri Lankan Rupee is currently the worst performing currency globally.
The Chinese, meanwhile, are sitting in the Indian Ocean port of Hambantota, which they leased in 2017. Return of his loan to Sri Lanka. With little trade flowing through Hambantota, China’s interest in the port may only be strategic, with the potential for military use in the future.
It is a sad fall for a country which has attained the highest position in its field. Human development index and, until recently, had a higher GDP ($3,850) per capita than India, Pakistan or Bangladesh. till in 2019Sri Lanka had foreign exchange reserves of $7.5 billion. But costly and unproductive infrastructure projects have become a major factor in the country’s economic decline.
Other countries in South Asia are also saddened by the Chinese-funded white elephant Projects whose costs, especially maintenance, are high in comparison to their economic returns. Chinese borrowings caused a serious economic Problem two years ago in Maldives NepalWhich has borrowed from China for infrastructure projects, is facing balance of payments challenges.
Pakistan’s closest friend in South Asia is in talks with the IMF avoid mistake on your financial obligations. The China Pakistan Economic Corridor (CPEC), a group of infrastructure projects linking the two countries, once trumpeted as a game changer for Pakistan. Now it looks like nothing more than a Chinese attempt to establish a foothold on the Arabian Sea coast and closer to the oil-producing Gulf countries.
China is the biggest debtor of Pakistan. of Pakistan foreign debt $131 billion, of which $41 billion is owed to multilateral creditors, and about $19 billion China, Instead of strengthening Pakistan EconomyHeavy borrowings from China and economic mismanagement have resulted in double-digit inflation and erosion in the value of the Pakistani rupee. During the latest crisis, China has offered further loans to nuclear-armed Pakistan, but this will further drag the country into China’s “debt trap”.
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The economic problems in both Sri Lanka and Pakistan are partly structural. Supporting large military budgets, the elites of both countries pay little in taxes. The endless war against the Tamil minorities in Sri Lanka and against India and Afghanistan, in the case of Pakistan, is hardly conducive to investment.
The COVID-19 pandemic and high oil prices have also taken a toll on all South Asian economies. But none of these factors should dampen the impact of some governments’ decisions to tie their fortunes to China’s infrastructure plans. Unlike Western and multilateral donors, who are sometimes willing to convert loans into grants, China reluctantly agrees to defer, but never Cancel a payment due.
Once Sri Lanka and Pakistan address their current challenges, perhaps with the support of the IMF, they will do well to reduce their dependence on China as a partner. Borrowing from China has proved to be a poor substitute for structural economic reforms recommended by Western governments and institutions, often angering South Asian elites.
Hussein Haqqani is the director of South and Central Asia at the Hudson Institute. He served as Pakistan’s ambassador to the US from 2008 to 2011. Aparna Pandey is the director of the Washington-based Hudson Institute’s Initiative on the Future of India and South Asia. Thoughts are personal.
this article was originally published Feather hill, It is republished here with permission.