Colombo debt makes Beijing happy
News reports from July 6, 2021 indicated that Sri Lanka’s probability of default in one year was the highest in Asia-Pacific; from 13 percent about six months ago to 27.9 percent – surpassing Papua New Guinea, Kazakhstan, Mongolia, Pakistan, Malaysia and Indonesia. There were apprehensions about how the government would deal with debt of at least US $ 2.5 billion owed over the next six months with the economy hit by COVID-19.
In the above context, Ajith Nivard Cabraal, Sri Lankan Minister of State for Monetary and Capital Markets, said arrangements are being put in place to settle obligations through measures such as exchange controls and agreements. swap with China and Bangladesh to meet debt maturities until the end. 2021. However, Sri Lanka has not specified how the foreign currency debt service needs for 2022 and beyond are to be met.
Given the economic uncertainty, some opposition members have called on Sri Lanka to seek help from the International Monetary Fund (IMF), but the government is unwilling to do so although it can renegotiate the terms of the deal. $ 1.5 billion fund facility that ended prematurely in 2020 amid changes in funding needs due to COVID-19. Recall that in 2016, the IMF refused Sri Lanka the last tranche of another $ 1.5 billion loan, citing the government’s failure to reduce the budget deficit to 3.5% of gross domestic product ( GDP).
In March of this year, Sri Lanka signed a three-year, $ 1.5 billion (10 billion yuan) currency swap agreement with China to further promote trade and investment. China is Sri Lanka’s largest source of imports; In 2020, imports from China amounted to US $ 3.6 billion, or 22% of Sri Lanka’s total imports. Currency swaps allow central banks to ensure that banks in their countries can borrow cash in any currency. China also provided a $ 500 million loan to Sri Lanka this year, in addition to a $ 500 million loan granted in October 2020.
In May 2021, media reported that Bangladesh had entered into a currency swap deal with Sri Lanka. The report quoted Mohammad Islam, spokesperson for Bangladesh, as saying, “The board of the Bangladesh Bank has decided, in principle, to lend $ 200-250 million from Bangladesh’s reserves to Sri Lanka for three months. Interestingly, in April 2021 Bangladesh’s foreign exchange reserves hit an all-time high, surpassing $ 45 billion. India extended a $ 400 million currency swap to Sri Lanka last year.
China Harbor’s US $ 1.4 billion investment in Sri Lanka in September 2020 marks the first of a US $ 13 billion plan to transform the port city of Colombo into a world-class financial and commercial hub . Beijing’s trapping of Sri Lanka’s debt began by forcing it to cede the Port of Hambantota to China for 99 years. Hambantota is part of Beijing’s plan for a line of ports stretching from Chinese waters to the Persian Gulf. China has also agreed to provide a loan of $ 989 million to Sri Lanka to build a highway that will connect its central tea-producing region to the Chinese-run seaport.
In 2015, China had provided official development assistance (ODA) and foreign direct investment (FDI) to Sri Lanka amounting to approximately US $ 15 billion; most of the ODA in the form of loans and grants ($ 12 billion) in sectors such as energy, infrastructure and services. Chinese private investment in 2015 was US $ 3 billion. Overall, Chinese investment and aid to Sri Lanka increased further beyond 2015. But economic clout is not the only means used by China to trap a country’s debt.
Equally important is China’s political warfare, in which the main objective is to capture the political summit of the target country. China has expanded its presence in Sri Lanka under the leadership of former President Mahinda Rajapaksa, the older brother of the current prime minister. But with Sri Lanka already happy with China’s loans, grants and investments, Beijing sees yet another opportunity with the Gotabaya clan extending its grip on the Sri Lankan government.
President Gotabaya Rajapakse recently appointed his younger brother Basil Rajapakse as Minister of Finance. Basil Rajapakse, who was sworn in as an MP on July 8 and succeeded Prime Minister Mahinda Rajapaksa (his older brother) as Minister of Finance. Basil is the national organizer of the ruling party in Sri Lanka Podujana Peramuna (People’s Party) and the “fifth” brother Rajapakse in the cabinet. It controls the important institutions of Sri Lanka, including the Treasury and the Central Bank.
There is speculation among members of the People’s Party that Basil will run for president in the next presidential election, although President Gotabaya Rajapakse hinted at a second term himself when he spoke to them. heads of state and local media on his priorities, he said he would have five more years to achieve his goals.
According to the World Bank, the share of the poor in Sri Lanka rose to 11.7% in 2020, with the lower middle income poverty line at US $ 3.2 per day. There is a significant drop in GDP per capita to $ 3,682, compared to an average of $ 3,005 in 2017-2019. On August 31, 2021, President Rajapaksa declared an economic emergency to contain the surge in inflation after the sharp drop in the Sri Lankan currency which pushed up food prices; promulgate emergency regulations under the Civil Service Ordinance on the provision of essential goods.
Sri Lanka has appointed a former army general to the post of commissioner of essential services with the power to seize food stocks held by traders and retailers and regulate their prices. Sri Lanka’s economic situation means increased dependence on China; nothing could make the Chinese Communist Party (CCP) happier.
Given Sri Lanka’s geostrategic location, it is more than expected that China will do everything in its power to draw Colombo deeper into its strategic sphere. But the main concern is that China wants Sri Lanka to be part of its policy of encircling India. After making deep forays into Sri Lanka, China is now focusing on northern Sri Lanka in order to influence the region’s Tamil ethnicity.
In February of this year, the Gotabaya Rajapasa government decided to award the $ 12 million hybrid wind and solar power project to the Chinese joint venture Sinosar-Etechwin in three islets off the Jaffna Peninsula, barely 50 km from Tamil Nadu. Another Chinese joint venture has been reported to have been allocated land in a coastal village in northern Sri Lanka for cucumber farming despite protests from local farmers.
With Pakistan sitting on its lap, China is developing the China-Myanmar Economic Corridor along the lines of the China-Pakistan Economic Corridor in Pakistan. The first shipments via the Myanmar Rail Line to Chengdu in western China were recently delivered, signaling the new rail-road transport channel from China to the Indian Ocean. In view of the Indian Ocean, China has forged maritime links with Myanmar, Bangladesh, Seychelles, Mauritius and the Maldives in addition to Sri Lanka. It already has the entire Pakistani coastline.
China was behind the bloody Maoist insurgency in Nepal, which is old news. More recent is the decades-old Sino-Pakistani support for the Taliban that resulted in the ugly withdrawal of the United States from Afghanistan. The Sino-Pakistani link, together with Pakistan-based terrorist organizations and other terrorist organizations, has developed close ties with radical and terrorist organizations in Myanmar, Bangladesh, Nepal, India and the Maldives. It is in the same context that China is focusing on the Tamil ethnic population of northern Sri Lanka – to wage a sub-conventional war in southern India; although China and Pakistan helped Sri Lanka decimate the LTTE.