China’s hand in Sri Lanka’s economic calamity

Sri Lanka enters a new phase of its rolling crisis as the country’s Parliament selects its next president.

The departures and resignations of President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, two brothers who loomed large over the country’s politics for more than a decade, came amid an astonishing economic collapse that precipitated mass protests.

The resignations came as the country struggled to pay for crucial imports like food, fuel and medicine for its 22 million people as it battles a foreign exchange crisis.

Inflation soared about 50%, with food prices 80% higher than a year ago.

The Sri Lankan rupee has slumped in value against the US dollar and other major global currencies this year.

Many blame ex-President Gotabaya Rajapaksa for mishandling the economy with disastrous policies whose impact was only exacerbated by the pandemic.

Over the years, Sri Lanka had built up a huge amount of debt.

One of the major players in Sri Lanka’s calamity is China. Beijing is Sri Lanka’s lone biggest creditor, accounting for some 10 percent of the country’s foreign debt.

Between 2000 and 2020, it extended close to $12 billion in loans to the Sri Lankan government, largely for a slate of major infrastructure projects that turned into white elephants — including a costly port facility in the Rajapaksas’ hometown of Hambantota, which was effectively ceded to Chinese control half a decade ago after Sri Lankan authorities recognized they could no longer pay off the loans.

But it's largely unclear what Beijing's lending conditions have been, or how it may restructure the debt.

Where China is at fault, according to Alan Keenan from International Crisis Group, is in encouraging and supporting expensive infrastructure projects that have not produced major economic returns.

"Equally important has been their active political support for the ruling Rajapaksa family and its policies... These political failures are at the heart of Sri Lanka's economic collapse, and until they are remedied through constitutional change and a more democratic political culture, Sri Lanka is unlikely to escape its current nightmare."