China employed its devious ‘Debt Trap Diplomacy’ to gain a strategic edge over Sri Lanka, an independent foreign policy think tank said on Saturday after Lankan Prime Minister Ranil Wickremesinghe resigned making way for an all-party cabinet to assume control of the country.
“In response to Sri Lanka’s financial crisis, China employed its devious ‘Debt Trap Diplomacy’ to gain a strategic edge over the nation and hold its economy hostage,” Red Lantern Analytica said in a statement.
“The port cities of Hambantota and Colombo have been leased to China for 100 years. China is now the second largest lender to Sri Lanka, holding more than 10 per cent of Sri Lanka’s outstanding foreign debt in 2019,” the think tank said.
It added that Sri Lanka has fallen apart as a country because of the economic disaster caused by the poor governance, lack of transparency, the Chinese debt trap, and corruption.
Sri Lanka’s GDP-to-Debt ratio has been continuously increasing since 2010, when the island nation’s financial downward spiral began, the statement said, adding that an increase in the current account deficit and a steep decline in exports precipitated a full-blown economic crisis in 2019.
However, when China took advantage of the situation to increase Sri Lanka’s debt burden, India gave a helping hand by offering financial packages consisting of a $500 million credit facility for gasoline imports and a $1 billion credit facility for imports of critical products from India, the think tank asserted.
Additionally, India has sent $2.4 billion through currency swaps, loan deferrals, and other credit lines. However, it was unable to save Sri Lanka, which was entirely enslaved by Chinese debt and ultimately succumbed to it, added the statement.
The think tank also said that China’s economic help to Sri Lanka was mostly a plan to get political and security leverage against India, and move forward with its expansionist goals along the Indian Ocean Rim.
“The nations of the world must learn from the fall of Colombo and avoid falling into China’s debt trap. In addition, other major powers must devise development plans and infrastructure projects for underdeveloped nations to halt the expansion of China’s BRI,” the statement noted.
Ranil Wickramasinghe is a regular contributor to Business Standard.