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Tuesday, June 6, 2023

Rajapaksas & China’s Debt Diplomacy Wreck Sri Lanka

The corrupt Rajpaksas riding high on China’s debt diplomacy have ensured that Sri Lanka is an economically bankrupt country. According to Reuters, Sri Lanka is expected to be placed into default by rating agencies for nonpayment of coupons on two of its sovereign bonds as the 30-day grace period ends following which the island nation’s rating could be further cut to “D.”

Things have come to such a pass that printing new currency, selling its airline, and asking the world for financial help are the only options left in front of the incumbent PM Ranil Wickremesinghe.

The PM said that the country had secured 160 million dollars in bridge financing from the World Bank but was unsure if the funds could be used for fuel payments. “The statistics have gone haywire and we don’t have even one million dollars,” he said.

“Sri Lanka currently has no dollars to pay for petrol shipments”, power & energy minister Kanchana Wijesekera told parliament. “There aren’t enough dollars to open letters of credit,” he said.

The covid pandemic drowned Sri Lankan tourism which accounts for 10% of the GDP hastening the capitulation of its economy but it was the tango between the Rajapaksas and China that ruined the island nation.

The Sinhala – Tamil divide, pursued so assiduously by the Rajapaksas in consonance with the Buddhist clergy, bending over backward towards an ever opportunist China for loans, swanky infrastructure & financial fraudulence ensured that Sri Lankan reserves have evaporated.

The great infrastructure push which included the building of ports and highways with Chinese money, men & machines led to spiraling debt and the current emptying of the coffers.

Bharat has stepped onto the plate and extended a 1.5 billion line of credit apart from sending medicines and other relief supplies and its deft diplomacy & humanitarianism have the Lankan hierarchy, clergy & the common man pondering and repentant on the island nation’s over-reliance on China.

China’s ill-disguised debt diplomacy which has ruined many economies got the better of the island nation as it ceded the Hambanthota port to a Chinese firm which is a euphemism for the Chinese hierarchy as everything is State-controlled.

Rajapaksas have been running Sri Lanka as a part of their family fiefdom since 2005 with a small blip when Wickremesinghe was at the helm for 4 years. The 4 brothers (Basil & Chamal being the other two) along with their sons have been ruling Sri Lanka as a part of their extended family.

After coming to power they snubbed Bharat in 2005 by openly aligning with China and falling for the credit bait of the dragon which they later found hard to pay.

In his second stint in 2019, Mahinda Rajapaksas tried to mend fences with Bharat by giving Bharat access to redevelop the strategic oil terminal near the Trincomalee port that has nearly 100 large oil tanks.

However, the damage has already been done to the Lankan economy and it will take a herculean effort from all political parties to pull Sri Lanka from this morass.

Rajapaksas’ great lust for Chinese debt at exorbitant rates led to the island nation slipping into the debt trap. The Chinese development bank offered a 1 billion syndicated loan which was lapped up by Mahinda Rajapaksa at over 5% interest when cheaper lines of credit were available from western banks and the IMF.

In early 2022 President Gotabaya and Mahinda asked the Chinese to restructure almost 600 million dollars of loans that the government owed to Chinese banks according to the Advocata Institute a Colombian think tank.

The majority of Sri Lankan debt got accumulated during the decade-old rule of the Rajapaksas from 2005 to 2015 as the two brothers got sucked in by the Chinese debt trap in the garb of infrastructure development & port modernization.

To make matters worse the Rajapaksas tax cuts led to a shortfall in revenue which fell to an all-time low of 9% of the GDP.

Though the island nation has hit a nadir politically and economically, the democratic uprising which overthrew the incompetent government is a lesson for the bigger democracies and an eye-opener for the world.

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Aman Gupta
Aman Gupta
Political Editor, Samast Bharat magazine


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