Sri Lanka’s economic challenges amid Chinese pressure

Sri Lanka China Debt Trap India

A multifaceted interplay of economic troubles, strategic dynamics, and regional influence is currently unfolding in Sri Lanka. This island nation grapples with mounting debt and is navigating China’s growing presence and influence in the region, Daily Mirror reported.

Sri Lanka’s total external debt exceeds USD 50 billion, with a significant portion, roughly 10 per cent, owed to China. This debt encompasses official loans and less visible commercial borrowings from Chinese commercial banks.

Notably, Sri Lanka owes USD 119 million to the China Development Bank Corporation, USD 232 million to the China Development Bank, and USD 232 million to the Export-Import Bank of China, according to Daily Mirror, a daily English-language newspaper published in Sri Lanka.

Despite China’s promises to assist in debt restructuring, tangible actions have been limited. Sri Lanka urgently requires a USD 3 billion bailout package from the International Monetary Fund (IMF), with the first installment already received. The release of the crucial second tranche hinges on China and other bilateral lenders restructuring their debt terms with Sri Lanka.

According to Daily Mirror, China initially participated in discussions with other creditors, including India and Japan, offering a two-year moratorium on debt repayments and even exploring the possibility of providing new loans. However, China later altered its stance, creating roadblocks in Sri Lanka’s efforts to secure IMF aid.

In response to the debt restructuring issue, Japan, India, and France formed a committee for negotiations, inviting China to participate. However, China chose to engage directly with Sri Lanka, assuring no preferential treatment in the process, as reported by Daily Mirror.

Despite ongoing economic challenges, Sri Lanka is in a complex position, obliged to host Chinese military vessels in its ports. This strategic move by China raises regional concerns, as it’s perceived as an effort to extend influence in the region.

Recent developments indicate some progress, with the Export-Import Bank of China reaching a preliminary agreement with Sri Lanka regarding the resolution of China-related debts. This follows Sri Lanka granting permission for a Chinese research vessel to dock in the country, which has raised concerns, particularly from India, regarding the vessel’s capabilities.

As Sri Lanka navigates its economic and strategic challenges, the upcoming Belt and Road Initiative summit, led by China and attended by Sri Lankan President Ranil Wickremesinghe, offers a ray of hope. This summit is expected to provide a platform for discussions on debt relief and may redefine Sri Lanka’s complex relationship with its largest lender and strategic partner, China.

The outcome will be closely watched, as it holds the key to addressing Sri Lanka’s economic woes while India plays a significant role in the region, Daily Mirror reported.

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