During the past decade, China funded the construction of massive infrastructure projects in Sri Lanka meant to boost the island nation’s economy. However, after the economic collapse of the tiny Indian Ocean country earlier this year, there were questions about whether these projects had contributed to the worst crisis the country has ever faced, according to a report by Voice of America (VOA).
According to the report, “A port city that dominates Colombo’s seafront was built on a 269-hectare patch of land reclaimed from the sea. It was to become a thriving business and financial hub, but it is virtually deserted.”
An international airport commissioned at Sri Lanka’s Mattala city almost a decade ago is called the “emptiest airport in the world.” Both these projects funded by China are seen as “white elephants” that have significantly contributed to Sri Lanka’s debt.
Asanga Abeyagoonasekera, a Sri Lankan security and geopolitics analyst has been quoted by VOA, as saying: “The airport is not functioning. The Colombo port city was supposed to attract international investors, but there is not a single investor right now. There is a question about the revenue model of all these projects because they are not financially viable. They were built with unsustainably large amounts of borrowings with high-interest rates.”
Estimates show that Chinese loans contribute about 10 to 20 per cent to Sri Lanka’s debt.
According to analysts, Sri Lanka’s situation worsened due to the billions of dollars spent on these Chinese-funded projects.
“China is known for working out arrangements that often turn out much costlier than just looking at the paper would tell you. The inability of the Sri Lankan political class to understand the long-term consequences of the kind of short-term gains that they were making from China has allowed this to happen,” said Harsh Pant, vice president for studies and foreign policy at the Observer Research Foundation in New Delhi.
Sri Lanka in order to secure a $2.9 billion bailout from the IMF, hopes to hold early debt restructuring talks with China.
“Colombo reached a staff-level agreement with the IMF in September for getting the loan, but it is contingent on assurances from its creditors, including China, India and Japan, that the debts will be restructured,” according to VOA.
Recently, Asian Lite reported that the uncertainty and lack of clarity regarding the extent and time frame of China’s restructuring of its debt to Sri Lanka is delaying Sri Lanka’s bailout package from the IMF.
Debt restructuring is one of the prerequisites of the IMF’s bailout package for Sri Lanka. The process is, however, getting delayed due to Sri Lanka’s dire situation and a delay in concrete commitment from China, the island nation’s largest bilateral lender. Sri Lanka seems to be missing its December deadline.