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The huge projects financed by China that deepened Sri Lanka’s debt

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A brand new international airport with no traffic, an inactive conference center or a port ceded to a Chinese company are some of the colossal investments that aggravated the foreign debt of Sri Lanka10% of which contracted with China.

The island of 22 million people took on massive debt to overcome years of budget and trade deficits. For months, the population has suffered from serious shortages of food, fuel and medicine and blames the president Gotabaya Rajapaksa of this historic crisis.

On Monday, clashes between supporters of the Rajapaksa and anti-government demonstrators left five dead and more than 225 wounded and forced Mahinda Rajapaksa to resign from his post as prime minister.

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During the latter’s time as president (2005-2015), the region of hambantotaancestral fiefdom of the clan, benefited from a torrent of investments destined for large infrastructure works, sprinkled with suspicions of corruption.

For the construction of the Mattala Rajapaksa International Airport, China lent the country US$200 million, but the terminal is used so little that its income is not even enough to cover electricity bills.

But in 2017, Colombo it was unable to pay its US$1.4 billion debt owed to China for the construction of the deepwater port of Hambantota.

“We were very hopeful when the projects were announced. And in this region things were better”recalls Dinuka, a local. “But now that doesn’t mean anything. Our children will also continue to pay this debt.”.

The port, located on the world’s busiest East-West shipping lane, was supposed to boost industrial activity but recorded losses of US$300 million in six years. In the end, the country was forced to cede it to a Chinese company for 99 years.

Sri Lanka’s indebtedness to China as a result of these projects raised concerns among Western countries and India.

“Debted up to the neck”

“Fiscal generosity over several decades and weak governance got us into this quagmire”declared Murtaza Jafferjee, president of the think tank Advocata Institute of Sri Lanka.

Another example: a $15.5 million conference center near the port that, since it opened, has done nothing but collect dust.

“We are in debt up to our necks”, he lamented Krishantha Kulatungaowner of a small stationery store in Colombo.

His store is near a skyscraper in the shape of a lotus flower, the Lotus Towerfinanced with Chinese funds but which has not been opened to the public. “How can we be proud of this tower when they leave us begging for food?”asks the merchant indignantly.

“China did what it could”

China, the government’s main bilateral lender, holds at least 10% of its foreign debt, valued at US$51 million, although analysts believe it is actually much higher.

The government attempted to negotiate the payment schedule with Chinabut Beijing he preferred to offer more bilateral loans to repay existing loans.

In the end, Sri Lanka resorted to International Monetary Fund (IMF) last month, much to the chagrin of China, which is likely to be affected by a discount on its loans, like other creditors.

“China did its best to help Sri Lanka avoid default but unfortunately the country went to the IMF and chose default” on April 12, declared the Chinese ambassador Qi Zhenghong in Colombo last month.

The IMF requires Sri Lanka to restructure its debt before any bailout, and this “surely (it will) have an impact on future bilateral loans” from Beijing to Colombo, warned the ambassador.

Source: Gestion

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