Workers wave Chinese and Sri Lankan national flags at the arrival of China’s research and survey vessel, Yuan Wang 5, at Hambantota port on August 16, 2022. , photo credit: AFP
If this is a conversation on Sri Lanka’s economy, it is inevitable to talk about China and India. ‘What about China? What will India do?’ These are questions that inevitably come up in casual chats, as well as in official meetings and briefings. The growing Sino-Indian competition in Sri Lanka is a matter of concern for Sri Lankan columnists and diplomats based in Colombo. With the focus turning to the beleaguered island’s impending debt restructuring programme, interest in the two big powers’ responses has only grown.
For context, China is a close partner of Sri Lanka and its largest bilateral creditor. At the end of 2021, the island owed about $7.4 billion, or 19.6% of China’s outstanding public debt. To Sri Lanka watchers, especially those based in the West or India, it is a “Chinese debt trap”.
India is the closest neighbor of Sri Lanka with shared history and geography. India is Sri Lanka’s third largest bilateral lender, after Japan, and a major development partner. Last year, India gave nearly $4 billion to Sri Lanka to help ease its crisis. Before the emergency loan in 2022, Sri Lanka had a debt of one billion dollars to India.
Despite repeated debunking of that theory by economists in Sri Lanka and elsewhere, the “Chinese debt trap” narrative is irresistible to some. Sri Lanka may be in a debt trap, but it is not necessarily a Chinese one. The largest portion of Sri Lanka’s external debt is owed largely to Western, private creditors who hold international sovereign bonds, according to a recent statement by global scholars.
But that doesn’t mean official lenders should be spared from public scrutiny. Whether Chinese loans “trap” Sri Lanka or not, it is a fact that the small island nation still owes a vast amount to a very powerful partner. Similarly, while India gave significant aid last year, it does not mean that its other loans and investments, both state and private, should not be scrutinized. The terms of any of these loans, be it from China, India, private lenders or large FDI, are worth noting.
For reporters, there’s the rub. Finding out exactly how Sri Lanka may have become mired in debt requires access to information that is securely guarded by the establishment. What are the lending rates, what is the tenure of the loan, how exactly is the borrowed money being used, what happens when the borrower is unable to repay the amount? While these are obvious questions to ask, executives will usually respond with something decidedly unhelpful, but fancy-sounding, such as: “We’re working out the contours of the agreement”. Interestingly, the India-China lens of Sri Lanka’s economic realities also leaves little room for Japan, once Sri Lanka’s top donor and currently its second largest official creditor.
But more telling is how little Sri Lankans figure in this binding geopolitical framing. Regardless of where the money comes from, the people in whose name the Sri Lankan government asks for money have a big stake in its use.
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Because they don’t just see the projects as Indian or Chinese aid. They evaluate it on the basis of whether a development project works for them or not.
Analingam Annarasa, a prominent fishermen leader in Sri Lanka’s northern Jaffna district, has recently drawn attention to sea cucumber farms growing rapidly in war-torn areas with Chinese investment. They worry that fishermen are barred from access to parts of their coastline, and that invasive sea cucumber farming is bound to harm the local marine ecosystem. Their problem is not that the project is Chinese, but that it is dangerous to their environment and livelihood. In fact, I met Mr. Annarasa many years ago as a man who strongly opposes Indian fishing vessels ravaging Sri Lanka’s northern seas. As a journalist-friend of mine says: “Understanding is in the general, truth is in the specifics”.
meera.srinivasan@thehindu.co.in