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Home›Kenya financing›China’s infrastructure projects have exacerbated Sri Lanka’s economic woes

China’s infrastructure projects have exacerbated Sri Lanka’s economic woes

By Sherri Christopher
June 1, 2021
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The development of Hambantota International Port (HIP) was adopted by former Sri Lankan President Mahinda Rajapaksa, the older brother of the outgoing operator, to boost the economic development of his home district in 2009 and against the opinions of critics who had expressed concerns about its commercial viability. .

After the refusal of Indian companies, he turned to China, attracted by the strategic location of this port, located at the tip of the Indian Ocean (through which most of the Gulf’s international oil traffic passes) and barely 300 miles from the Indian mainland. .

Between 2007 and 2014, China granted five loans amounting to $ 1.26 billion for the development of this port, starting at 1% or 2%, but then increased to 6.3% with periods short repayment terms.

Although the port was opened on November 18, 2010, it failed to attract many ships, which preferred to dock at the nearby port of Colombo. As debt repayment obligations rose, Maithripala Sirisena’s successor government ceded an 85% stake in the port in August 2017 to China Merchants Port Holdings Company (CMPort) for 99 years for $ 1.12 billion. The remaining 15 percent remained with the Sri Lanka Ports Authority; the port’s commercial operations were managed jointly while its ownership remained with the Sri Lankan government.

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After CMPort took over the predominant stake, port operations were expanded to include container handling, general cargo, passengers, bunkering, bulk terminal including for LNG, roll-on- roll off with a doubling of activity since 2017. industrial zones on 15,000 acres of land associated with HIP location companies, which can export worldwide.

China is also investing $ 1.4 billion in the Colombo Port City Project, which will involve land reclamation and infrastructure construction adjacent to Colombo Port, and the construction of an integrated complex, casinos. , a conference center, a marina, residential apartments, zone and green space. In addition, China has provided billions of dollars in loans to Sri Lanka to develop a seaport, airport, highways and power plants. While the country’s debt to China has grown to around $ 8 billion (2020), these projects have yet to generate sufficient revenue for debt servicing.

The Chinese economy, for its part, fell, its GDP increasing by 2.3% in 2019 and contracting in 2020 by (-) 3.6% (GDP of around 78 billion dollars in 2020). It suffers from several structural problems such as the decline in the trade-to-GDP ratio (which fell from 33% in 2000 to 13% in 2019), the inability to diversify export destinations, low levels of FDI and the decline in tax revenues. Its public debt-to-GDP ratio fell from 71.5% in 2010 to 101% in 2020. Fitch and other rating agencies downgraded Sri Lanka’s sovereign debt rating to “CCC”, indicating the risk of to honor its debt repayments, which had negative consequences. affected the country’s ability to mobilize finance in financial markets.

Sri Lankan leaders, including the current president, are playing down China’s debt liabilities, however, as China has become the lender of last resort to provide periodic support to Sri Lanka’s balance of payments. In early 2021, China provided a $ 1.4 billion currency swap facility to tackle the currency shortage. This was followed by a $ 500 million foreign currency term facility from the Development Bank of China and a $ 180 million loan from the Beijing-based Asian Infrastructure Investment Bank in April 2021.

Since the development of Chinese projects was not based on independent feasibility studies, doubts remain about their financial viability. The record of China’s many infrastructure projects in Zambia, Kenya, Pakistan, Myanmar and other countries portends a bleak future.

Although India has not provided China-wide loans and investments, India’s investments have facilitated crucial technology transfer, partnerships, trade creation and capital development. human. India has improved Sri Lanka’s rail networks, which serve more than 300,000 daily commuters and built 50,000 houses for those displaced by the civil war. Its free trade agreement has enabled Sri Lanka to increase its exports to India. Besides the Gulf region, India is the second largest source of workers’ remittances. Indians represent 20% of tourist flows in Sri Lanka.

While Sri Lankan leaders have assured that they will take no action to undermine India’s security, China’s creeping influence could put increased pressure on Sri Lanka in the future to allow the China to make military use of these facilities to the detriment of India. China can disrupt trade and energy flows through the Indian Ocean and set up basic facilities to ban naval operations from India, the United States and other countries.

Recently, Sri Lanka decided to cancel a proposal to develop the eastern container terminal in the port of Colombo with the help of India and Japan in the face of opposition from some nationalist groups. India will need to take the necessary steps with like-minded countries such as the United States, Japan and others to moderate China’s growing influence in Sri Lanka and prevent it from descending into an economic quagmire. to ensure that their interests are not affected.

(Yogesh Gupta is a former Ambassador who writes on issues related to China.)

Disclaimer: The opinions expressed above are those of the author. They do not necessarily reflect the views of DH.



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