WASHINGTON: Amid the ongoing economic downturn in Sri Lanka, the Washington-based group Global Strat View said that the island nation has to rethink seriously to save its economy, which analysts say have fallen into China's debt-trap policy.
In an analytical piece, Global Strat View on Sunday said Sri Lanka's financial crisis is leading to a humanitarian crisis that could ultimately push the country into bankruptcy. Many critics believe the Chinese debt trap policy is the primary cause of the country's financial crisis.
Sri Lanka's financial crisis was brought to light when the Sri Lankan government declared a national economic emergency in August last year after a sharp fall in the country's currency.
Sri Lanka's foreign debt has increased steadily since 2014 (30 per cent of GDP), reaching 41.3 per cent of GDP in 2019, and this, in turn, has put a severe load on the country's debt service, the report said.
The Global Strat View report further highlighted Sri Lanka's debt and said, the country's foreign reserves are also depleting significantly faster and stand around USD 1.6 billion, barely enough for a few weeks of imports. It also has foreign debt obligations exceeding USD 7 billion in 2022, including repayment of bonds worth USD 500 million in January and USD 1 billion in July 2022.
The report further said that according to the Central Bank, prices have risen dramatically, with the inflation rate rising to 12.1 per cent at the end of December from 9.9 per cent in November 2021. During the same time frame, food inflation soared to almost 22 per cent.
Stressing on the country's economic condition, the report said, since the island country is cash-strapped, it is becoming difficult not only for importers to clear cargo containing essential items, but manufacturers are also unable to acquire fresh raw materials.
Furthermore, the effect of the Covid crisis, the loss of tourists, high government expenditure and tax cuts depleting state revenues, and the use of money for initiatives with minimal returns have all contributed to Sri Lanka's economic meltdown.
"Sri Lanka is commonly described as a country that has fallen into debt due to public investment projects sponsored by China as part of its Belt and Road Initiative, a long-term effort to fund and construct infrastructure linking China to the rest of the world," the report said.
After disbursing billions of dollars in soft loans, China has become Sri Lanka's fourth-largest lender, the report said, adding that "China is present in Sri Lanka for its own benefit rather than Colombo's".
Citing the example of Hambantota project, Global Strat View said the port developed with significant Chinese funding had no commercial viability, but China persuaded Sri Lanka to proceed with the project. As the port struggled to gain momentum, Beijing wanted it as collateral, compelling the Sri Lankan government to hand over management to a Chinese corporation on a 99-year lease in 2017.
Despite this, the Sri Lankan government has further awarded the contract to the state-owned China Harbour Engineering Company to build Colombo's eastern cargo terminal. Last month, Sri Lankan President Gotabaya Rajapaksa asked China to restructure the island nation's massive debt to Beijing. He conveyed his proposal to the visiting Chinese Foreign Minister Wang Yi, who met with the President in his office in Colombo.
According to Global Strat View, Sri Lanka has to rethink seriously to save its economy from the debt-trap policy of the dragon. "First and foremost, President Rajapaksa must reconsider his policies to offer security to his own country by seeking the assistance of neighbouring countries such as India, which can work as a balancing wheel against China," the report added.