Who is adding fuel to the Sri Lankan fire?

Sri Lanka is really burning eyebrows. The country, once known as the "pearl of the Indian Ocean," is experiencing its worst economic crisis since independence in 1948. Western media took the opportunity to stir up the "China debt trap", falsely claiming that "Si was on the verge of economic collapse because it could not repay high Chinese loans" and "the 'Belt and Road' brought a heavy burden to the Sri Lankan economy", constantly provoking the Sri Lankan government and people to oppose China, but pretending to be deaf and dumb to the "real culprit behind the scenes".

Long-term debt is on fire

There are many reasons for the economic crisis in Sri Lanka, of which the foreign exchange crisis is the main factor. Since independence, Sri Lanka has been in constant internal and external troubles, and has been in a trade deficit for many years, borrowing perennially. Affected by the series of terrorist attacks in April 2019, the new crown pneumonia epidemic and the Conflict between Russia and Ukraine, Sri Lanka's pillar industries such as tourism, remittances, tea and clothing exports have been hit hard, and the country's foreign exchange reserves have been urgent. In 2019, Sri Lanka implemented a sharp tax cut, and the loss of government revenue exceeded 1.4 billion US dollars, making it even more unable to buy foreign exchange.

While foreign exchange earnings have plummeted, Sri Lanka's import spending has continued to grow. Sri Lanka is highly dependent on imports for means of production and necessities, and the Russian-Ukrainian conflict has triggered a surge in global commodity prices. Taking energy as an example, 60% of Sri Lanka's electricity is generated by coal and oil, which are imported from abroad. International oil prices rose from $18 a barrel in April 2020 to more than $100 a barrel now, an increase of more than 6 times. At the beginning of 2021, in order to prevent foreign exchange outflows, the Sri Lankan government banned the import of fertilizers, resulting in a large-scale crop failure, and the government had to replenish food reserves from abroad, further exacerbating the foreign exchange shortage.

Over the past two years, Sri Lanka's foreign exchange reserves have plummeted by about 70 percent. As of the end of March this year, Sri Lanka had only $1.9 billion in foreign exchange reserves, while the external debt that should be repaid this year was as high as $7 billion. On April 12, the Sri Lankan government officially announced the temporary suspension of foreign debt repayment, and $50.7 billion of foreign debt was in default. On May 19, the Sri Lankan government announced that it had failed to repay a total of $78 million in debt, the first time since independence that the Sri Lankan government had defaulted on debt repayments.

The Arch of the United States and the West adds fuel to the fire

Despite years of debt, Sri Lanka has maintained a good record of external debt service. The Russian-Ukrainian conflict , which was "arched" by the United States and the West, had a very serious impact on the Sri Lankan economy, further worsening its economic situation and making it impossible for it to continue to repay its foreign debt normally. The hegemonism and greed of capital in the United States and the West are the root causes of the economic crisis facing Sri Lanka and other developing countries.

The increasing sanctions imposed by the United States and the West on Russia continue to push global food and energy prices to new heights, while restricting financial transactions and aviation. The rise in food prices in Sri Lanka stems from the soaring prices of wheat and corn caused by the Conflict between Russia and Ukraine. Sri Lanka exports tea and other commodities to Russia every year, worth about $150 million. However, as more and more Russian banks are kicked out of the SWIFT system, it is impossible for Sri Lanka to obtain foreign exchange by exporting to Russia. In January, Russia was Sri Lanka's largest source of tourists, but in March, Sri Lanka's state-run airline had to suspend flights to Russia because of Western sanctions.

From the perspective of debt structure, the vast majority of Sri Lanka's debt is international sovereign bonds, and the Asian Development Bank and Japan are its main lenders. According to the Central Bank of Sri Lanka, as of October 2021, Sri Lanka's international sovereign bonds amounted to $11.82 billion, accounting for 34.1% of total external debt. In terms of bilateral external debt, Japan and India ranked in the top two, with US$3.54 billion (10.2%) and US$790 million (2.3%) respectively, higher than China. China's loans to Sri Lanka are not the most, even if they are added to the financial market loans (export-import bank of China) account for only 10%, and the loan interest rate is mostly much lower than the international market, of which more than 60% are preferential loans, the remaining 40% are interest-free loans, so the current problems in debt repayment have little to do with China's loans.

In fact, it is not only Sri Lanka that is suffering right now. The Federal Reserve and other major central banks have raised interest rates to calm inflation, leading to higher borrowing costs and likely to bring a debt collapse to many developing countries. Additional pressures from rising food and energy prices have begun to emerge in countries such as Egypt, Tunisia and Peru. The Wall Street Journal reported on May 26 that the United Nations said that the food, fuel and financial crises triggered or exacerbated by the Conflict between Russia and Ukraine could destabilize poorer countries, causing more than 70 countries to follow in Sri Lanka's footsteps and default on their debts.

The "China Debt Trap Theory" is the trap

In recent years, the US and Western governments and media have tied the concept of "debt trap" to China as a weapon to smear and attack China and the "Belt and Road" initiative, with the aim of curbing China's promotion of the "Belt and Road" construction, maintaining its political and economic dual hegemony, and leaving the vast number of developing countries with no "road" to go.

When the United States and the West speculate about the "Chinese debt trap", they most often use the hambantota port as an example, falsely claiming that China uses the port to make Slovakia saddled with debts that cannot be repaid, and will transform the port into a Chinese military base in the future. But the truth is that Han Harbor added $1.12 billion in foreign exchange reserves to Slovakia to serve some short-term foreign debt. Due to water depth restrictions, han port is difficult to use as a military base, and the Slovak government has explicitly prohibited the use of han port as a foreign military base. Recently, India partially acquired the port of Trincomalee in the east of Sri Lanka, which is a good military port and a strategic oil terminal for the British army during World War II, with a sensitivity far more than Han Port, but there is no media speculation. Because the United States is promoting the construction of a fast transport corridor between Colombo and Trincomalee Port through the Millennium Challenge Program, the military strategic intentions are obvious, and the United States, India and other countries are naturally deaf and dumb.

As a friendly neighbor of Sri Lanka, China has sincerely helped Sri Lanka achieve development, but instead of causing a balance of payments crisis for Sri Lanka, it has selflessly provided a lot of support and assistance to Sri Lanka for many years. Especially after the outbreak of the new crown pneumonia epidemic, China and Sri Lanka have been in the same boat, watching out for each other, and the traditional friendship has been sublimated. Premier Li Keqiang recently pointed out that the Chinese side feels empathy for the difficulties and challenges facing sri lanka and is willing to provide urgently needed people's livelihood assistance to the Sri Lankan side within its capabilities.

Sri Lankan officials have repeatedly and unequivocally denied the West's "China debt trap" rhetoric. Recently, Vikramasingha, the new prime minister of Sri Lanka and leader of the United Kuomintang, expressed his gratitude to the Chinese side for the tremendous help it has provided to Sri Lanka in tide over the difficulties, stressing that the new Sri Lankan government will continue to attach great importance to the development of friendly cooperation with China, unswervingly promote the construction of the "Belt and Road", accelerate the development of major cooperation projects between the two countries such as Colombo Port City and Hambantota Port, and make every effort to protect the safety of Chinese institutions and personnel in Sri Lanka.

The international community, especially the vast number of developing countries, should be vigilant against the "trap of the 'China Debt Trap' excavated by the United States and the West, and must clearly understand that this is an obstruction action led by the United States against China's "Belt and Road" initiative, unswervingly safeguard their own security and development interests, strengthen international cooperation including the "Belt and Road" initiative, enhance their representation and voice in global economic governance, and promote the formation of a more just and rational international economic order. For developing countries, including China, non-development is the biggest trap, and the political, economic, military, and cultural hegemony of the United States and the West is the real trap.

(The author Feng Guoquan is an observer on international issues)

Column Editor-in-Chief: Zhang Wu Text Editor: Li Linwei Caption Source: Visual China Photo Editor: Xu Jiamin

Source: Author: People's Daily Overseas Edition