Sri Lanka is now in a deep economic crisis as the country goes bankrupt due to China’s Belt and Road debt trap.
According to Nikkei Asia, now-resigned Sri Lanka Finance Minister Ali Sabry admitted that its foreign currency reserves had only 50 million dollars by late April, while the country needs about 3 billion dollars in foreign aid for the next six months.
According to a report by the AidData Research Laboratory at the College of William and Mary in 2021, the Chinese regime has 13,427 projects in 165 countries worth 843 billion dollars under the Belt and Road Initiative.
Sri Lanka has borrowed up to 3.5 billion dollars from China under Belt and Road Initiative projects.
China also is currently Sri Lanka’s largest lender. China’s loans account for 11 billion dollars of the country’s 51 billion dollars in debts.
Ski Lanka has long tilted toward pro-Beijing foreign policy, particularly during Mahinda’s second term from 2010 to 2015. Beijing soon gave 5 billion-dollar loans to help Sri Lanka promote various infrastructure projects, from new ports to airports and highways.
Beijing also invested 1.4 billion dollars in the “One Belt, One Road” initiative to build a modern commercial center off the coast of Colombo, putting Beijing in control of its strategic Indian Ocean resources.
In addition, in 2017, due to debt obligation failure, Sri Lanka had to give its strategic Hambantota port to China on a 99-year lease.
By 2020, Sri Lanka’s inability to repay its foreign debt as it falls due is imminent. The International Monetary Fund (IMF) estimates Sri Lanka’s foreign debt at 38.6 billion dollars or 47.6 percent of the central government’s total debt.
However, the borrowing cost from Beijing is much higher than others. According to a Colombo think tank Verite Research, the average interest rate on China’s loans is 3.3 percent, compared to 0.7 percent from Japan. The average maturity period for Chinese debt is 18 years, shorter than India’s 24 years and Japan’s 34 years.
While facing a severe political and financial crisis, Sri Lanka turned to Beijing, asking for a 2.5 billion loan. Still, the Chinese regime only responded with 31 million dollars in emergency humanitarian aid.
Sri Lanka decided to default on its foreign payments and turned to the IMF for help in April after failing to secure a 1.5 billion dollars credit line and a 1 billion dollars syndicated loan from China.