China's 'Debt-Trap Diplomacy' Believed To Be Behind Sri Lanka Crisis, Claims Report

Sri Lanka has been facing its worst economic crisis since gaining independence in 1948. Amid food, medicine and fuel shortages, soaring prices and power cuts, many believe that China's "debt-trap diplomacy" is behind the crisis, said a media report, as mentioned in ANI.

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Also Read: Friend Or Foe? Before $2.5 Billion 'Help', China Had Rejected Sri Lanka's Loan Rescheduling Appeal

China's Debt-Trap Policy

Writing in Channel News Asia (CNA), a Professor of Economics at Tata Institute of Social Sciences, R Ramakumar, highlighted that China's ¡®debt-trap¡¯ policy is singularly responsible for the dire economic situation of Sri Lanka.

"Many believe that Sri Lanka's economic relations with China are the main driver behind the crisis. The United States has called this phenomenon debt-trap diplomacy," the report said.

The report further stated that debt-trap diplomacy is where a creditor country or institution extends debt to a borrowing nation to increase the lender's political leverage - if the borrower extends itself and cannot pay the money back, they are at the creditor's mercy.

Defaults over China's infrastructure-related loans to Sri Lanka, especially the financing of the Hambantota port, are being cited as factors contributing to the crisis, the report noted, as per ANI.

The construction of the Hambantota port was financed by the Chinese Exim Bank. The port was running into losses, so Sri Lanka leased out the port for 99 years to the Chinese Merchant's Group, which paid Sri Lanka USD 1.12 billion, the report said.

Also, the island nation relies on the import of many essential items, including petrol, food items and medicines. Most countries will keep foreign currencies on hand in order to trade for these items, but a shortage of foreign exchange in Sri Lanka is being blamed for the ¡®sky-high prices¡¯, Ramakumar said.

The economic crisis and slump are blamed on currency shortages caused by the travel ban imposed during the Covid-19 epidemic. This has resulted in the nation's inability to purchase sufficient fuel, resulting in an extreme shortage of food and essential commodities such as heating fuel and gas.

Sri Lanka On The Edge Of Humanitarian Crisis

According to the United Nations Development Programme, Sri Lanka appears to be on the edge of a ¡®humanitarian crisis¡¯ as its financial troubles grow. According to World Bank estimates, 5 lakh people in Sri Lanka have fallen below the poverty line since the onset of the crisis.

Seeking $4Billion From IMF This Week

Amidst all this, Sri Lankan officials are expected to arrive in Washington this week to meet with the International Monetary Fund (IMF). Sri Lanka is reportedly seeking up to $4 billion this year to help it import essentials and pay creditors. Now it remains to be seen how much money IMF extends to the crisis-hit island nation, to help it come out of the crisis and rebuild its economy.

Also Read: How Russia-Ukraine War Is Pushing Debt-Ridden Sri Lanka Towards A Possible Default

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