Western media misread Sri Lanka’s debt issue

By Wang Se (Global Times,  16 July 2018) –  Recently, some Western media outlets have accused China of using debt trap to expand its influence to Sri Lanka and other countries along the Belt and Road route. They allege that China lures countries of strategic significance into the debt trap by giving them huge loans and then taking over infrastructural projects there after these less developed countries cannot afford to repay the debts. Indian scholar Brahma Chellaney described it as debt-trap diplomacy. But is it really the case?

To begin with, China has no intention of trapping other countries with debts. In developing the Hambantota Port, China has been following the principle of achieving shared growth through discussion and collaboration, and Sri Lanka has been taking the initiative on construction of the port all the time.

Elected in 2005, former Sri Lankan president Mahinda Rajapaksa promised to develop Hambantota Port. But given scarce finances, Sri Lanka turned to China after its request was turned down by India. Beijing agreed to offer loans considering the long-term friendship between the two countries and Colombo’s call for development. Western media’s hype of China’s “conspiracy” is baseless.

Before the deal was inked in July 2017 to hand over the port to Chinese firms, China was participating in the construction and hadn’t been involved in the port’s management. The losses are a result of Sri Lanka’s political instability and inability to deliver. China is unwilling to see the losses, which would only raise the risks of Sri Lanka breaking the contract.

Moreover, China cannot be blamed for Sri Lanka’s debt quagmire. Government debt to GDP in Sri Lanka averaged 69.69 percent from 1950 until 2017. This is rooted in the country’s financial deficit – triggered by low revenues and huge welfare costs. In 2016, Sri Lanka’s financial deficit accounted for 5.4 percent of its GDP. Hence, the government had to borrow money.

Since April this year, Sri Lankan government has launched tax reforms to generate more income. According to official figures, Sri Lanka owed China $2.87 billion in 2017, which is only 10 percent of the country’s foreign debt. Meanwhile, Sri Lanka’s debt to Japan reached 12 percent of its total. Why does the West not blame Japan for Sri Lanka’s debt problem? Western countries have double standards in viewing China’s loans to other developing countries.

Western media holds pessimistic views on the economic prospects of the Hambantota Port. In fact, the port has huge potential, which if fully tapped would bring promising economic returns to Sri Lanka. After taking over the port, China has been establishing industrial parks and developing infrastructure so as to draw more investments. This will bring economic benefits to the port. While China can take advantage of the port to strengthen economic ties with South Asian countries, the facility can help Sri Lanka boost exports, provide more jobs to local people and generate higher tax revenues. This reflects the Belt and Road initiative’s purpose of mutual benefit.

For developing countries, debt is not an absolute monster. It can boost economic growth if used properly. China’s loans can help recipient countries address financial problems and boost foreign exchange reserves. China will continue to cooperate with Sri Lanka and other countries along the Belt and Road route and create more favorable conditions for their development.


The author is an assistant research fellow at the Institute of South and Southeast Asian and Oceania Studies, China Institutes of Contemporary International Relations. [email protected]

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