June 14, 2024

The Scoop India

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Why Sri Lanka on the verge of bankruptcy, does China have any role?

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“Our country will be completely bankrupt. I don’t want to scare anyone, but if this continues, then imports will stop, the whole ‘IT system’ will be shut down. Even we can’t use Google Maps.” Because we will not be in a position to pay for it.” This statement is from the prominent leader of opposition in Sri Lanka and economist Harsha da Silva, which he gave during the session of Parliament in Sri Lanka.

Speaking in the House, de Silva told the members that no matter how much payment should be made from the month of February to October of the year 2022, even then the foreign debt rising on Sri Lanka will not be able to get off.

Addressing the House, he said that by October, Sri Lanka would have only US $ 4.8 trillion left in the form of foreign exchange.

De Silva’s statement in the Parliament of Sri Lanka indicates how worrying Sri Lanka’s economy remains.

The prices of almost everything for general consumption have touched the sky and this inflation has broken the back of the people. The country’s leading bank has presented its account on its website, which has raised the concern of economists.

inflation rate

The National Bank of Sri Lanka i.e. ‘Central Bank of Sri Lanka’ has issued an official statement in January this year saying that the inflation rate has increased by 12.1 percent since December last year. Whereas this rate was at 9.5 percent in the month of November.

The government and economists are worried about this boom in a single month. To overcome this situation, Sri Lanka has also sought help from China, India and Gulf countries.

The role, or functioning, of ‘Central Bank of Sri Lanka’ is similar to that of ‘Reserve Bank of India’ in India.

The ‘Central Bank of Sri Lanka’ has given the reason for the increase in inflation and said, “It happened because of food items or other items, there has been a huge jump in the prices of all these. Fresh fish, vegetables and The biggest jump has been seen in the prices of green chillies. Apart from food items, due to the increase in the prices of diesel and petrol, other items have also become expensive.

Sri Lankan President Gotabaya Rajapaksa has already declared an ‘economic emergency’ in the country, which also gives special powers to the army to distribute food grains. The army has been given the right to ensure that the rates fixed by the government for food items reach the people at the same price.

heavy debt

Sri Lanka’s Finance Minister Basil Rajapaksa, while talking to reporters, has admitted that his country is currently immersed in foreign debt. The news agency PTE has given prominence to Rajapaksa’s statement when he said that the debt on his country mainly belongs to three countries – China, India and Japan.

He said that his country had to pay China’s 5 trillion US dollars in advance and Sri Lanka had to take an additional loan of one billion US dollars on it only last year to deal with the current financial crisis. Responding to questions from journalists, he said: “This year we have to pay off a debt of about 7 trillion US dollars. This is not only of China but also of India and Japan.”

According to the report of the major bank of Sri Lanka, the foreign exchange reserves with their country are also running out rapidly. Therefore, the bank has issued a notification to all the common citizens requesting them to deposit the foreign currency with them in the bank and asked them to take Sri Lankan rupees instead.

The notification is available on the Bank’s website which is in English language.

It has been said in the report that at present, Sri Lanka has a foreign exchange of $ 1.58 billion, which used to be $ 7.5 billion in the year 2019.

WA Vijayawardene, who was the deputy governor of the National Bank of Sri Lanka, has also warned the government to be prepared for the coming big crisis.

payment by tea

But the country’s Finance Minister Basil Rajapaksa did claim during a conversation with journalists that his country will “soon recover from the period of economic crisis” and will also pay back the debt raised on it “on time”. By the way, the government of Sri Lanka has also announced an economic package of 1.2 trillion US dollars to overcome this financial crisis.

But another senior Sri Lankan minister, Ramesh Pathirana, made a statement in Parliament that the country’s opposition parties and economists are considering as “ridiculous”.

Pathirana suggested that he would pay off the debt that his country owed to Oman by taking petroleum products “in such a way that every month Sri Lanka would export up to US$5 billion of tea leaves to Oman and so on.” Will pay his debt.

Renowned Sri Lankan economist Imesh Ranasinghe told The Morning, a leading English newspaper in Sri Lanka, that “there is no room for doubt that Sri Lanka’s economy was not so bad in the last 40 years.”

They say that the situation cannot be better even with the US $ 1.5 trillion that Sri Lanka has received from China through the ‘exchange’ of its currency.

He says that the international ‘rating’ body ‘Fitch’ has also reduced Sri Lanka in its ‘rating’. That is, Sri Lanka has stood in the worst economic position compared to other countries in this South Asian region.

Talking to a ‘think tank’ named ‘East Asia Forum’, Dushni Veerakoon of Sri Lanka’s ‘Institute for Policy Studies’ said that Sri Lanka has sought a ‘credit line’ from China and India to overcome the current economic situation.

She says that in lieu of this, Sri Lanka has relaxed and amended the terms of ‘Foreign Direct Investment’ ie ‘FDI’ for ‘Colombo Port City’ being built by China. At the same time, India’s large Adani Group has been given 51 percent participation in the project to develop the western ‘container terminal’ of Colombo port.

China’s ‘debt trap’

According to Veerakoon, even if it is assumed that now Sri Lanka will take over its position by taking financial help from China and India. But unless this country reconsiders its economic policies or makes them again properly, then in the coming years also the citizens of the country will have to go through bad times.

However, it is also true that there are allegations against China that China is trapping poor countries in its net by putting the burden of debt.

Kai Wang of the BBC Reality Check team writes in his report that China is facing a lot of criticism due to its methods of lending to extremely poor countries. China, however, dismissed these allegations, saying that there is not a single country in the world that has fallen into a “so-called debt trap” by taking loans from China.

Kai Wang writes that Richard Moore, the head of Britain’s foreign intelligence agency MI6, told the BBC in an interview that China uses this ‘debt trap’ to gain an edge over other countries. China has been accused that when the countries taking loans from it are not able to repay it, then they take possession of their properties. But he has been denying such allegations.

Hambantota Port

Wang further writes that the example of Sri Lanka is often given in support of this policy of China. It started a major port project in Hambantota with the help of Chinese investment a few years back. But this multi-billion dollar project, started with the help of Chinese loans and contractor companies, got stuck in controversy. The project was not being completed and Sri Lanka was under Chinese debt.

The report said that an agreement was finally reached in 2017. According to this, the Chinese government companies were given a 70 percent stake in this port on a 99-year lease. Then China started investing in it again.

Sri Lanka’s Finance Minister Basil Rajapaksa’s visit to India last December is considered important amid the serious economic crisis that has arisen in the country.

After talks with India’s External Affairs Minister S Jaishankar and Finance Minister Nirmala Sitharaman, India agreed that it would give a ‘line of credit’ to Sri Lanka for food items, medicine and other essential items.

India’s policy

Both Indian ministers assured the Sri Lankan delegation that India would respect its ‘Neighborhood First Policy’ and would also help Sri Lanka recover from this situation.

After this talks, India has also agreed to send petroleum products to Sri Lanka and modernize the World War II-built Trincomalee Tank Farm.

Apart from this, India has also agreed for the exchange of currency i.e. ‘Currency Exchange’, so that the government treasury of Sri Lanka can be prevented from ending at present.

However, according to a research report by Sri Lankan affairs expert N Satyamurthy in ‘Observer Research Foundation’, whatever India does, Sri Lanka will continue to maintain a ‘balance’ in its relations with India and China because doing so will benefit it. Will happen. In his research, he also says that Sri Lanka prefers to see China and India face to face.


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