Amid the global pandemic, as Sri Lanka battles COVID-19, it heads into yet another looming crisis – the Chinese debt trap, which is servicing its debt owed this year.

Beijing provided a $ 500 million loan as a bailout to fight the COVID-19 pandemic when Sri Lanka’s foreign exchange reserves declined to $ 7.2 billion in April. Last week, another decision to borrow 15 billion Sri Lankan rupees ($ 80 million) from the Development Bank of China was approved by cabinet ministers. This loan is intended to be used to improve 105 kilometers of roads in the country.

The world is facing a financial crisis and this decision to obtain a loan is criticized by critics of the Sri Lankan government, considering that the country is already riddled with debt with a huge amount of loan from China.

“Such projects are not priorities at the moment. This loan is just to improve the roads already built, and we can always improve the roads later ”, noted Harsha de Silva, former Minister for Economic Reform.

Previously, Sri Lanka had relied heavily on China to build a $ 1.5 billion port in Hambantota in the south of the country. After the port operated at a loss and failed to generate enough revenue to repay the loan to Beijing, the port was leased to China for 99 years in exchange for $ 1.1 billion, which relaxed his position.

According to estimates by the International Monetary Fund (IMF), the net borrowing of the government of Sri Lanka, which combines the budget deficits of central and regional governments, will reach 9.4% of gross domestic product in 2020, up sharply from the 6 , 8 of last year. %, Due to Economic impact of the epidemic.

In February, the IMF visited Sri Lanka to discuss the economic reform program with the authorities. After the visit, the IMF concluded that the economy is gradually recovering from the terrorist attacks of last April.

Real GDP growth was estimated at 2.6% in 2019. The recovery is supported by strong performance in the manufacturing sector and a rebound in tourism and related services in the second half of the year.

High-frequency indicators continue to improve and growth is expected to rebound to 3.7% in 2020, thanks to the recovery in tourism, and assuming the novel coronavirus will have a limited negative effect on tourist and tourist arrivals. other economic activities.

Sri Lanka’s currency fell to an all-time low of 200.6 rupees to the dollar last month. The finance ministry subsequently restricted imports of 156 items, including alcohol, food and clothing in April.

Chinese Ambassador to Sri Lanka Hu Wei, in a meeting with President Rajapaksa, said China is keen to help and will help “revive” the economy because Sri Lanka is a “special friend”. Rajapaksa responded by saying that “there are many opportunities for foreign investment. … I invite China and other countries to take advantage of these opportunities ”.

“We are also convinced that countries like China and Japan will provide us with the space we so badly need due to the current situation,” said Ramesh Pathirana, spokesperson for the cabinet.


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