Sri Lanka struggles to repay loans, China’s ‘debt trap’ for developing countries

China's loans to Sri Lanka have been a controversial topic, with fears that the government will struggle to repay them and that Beijing will use them to challenge India and the United States' influence in the Indo- peaceful. Debt-ridden Sri Lanka has approached China for help in restructuring loan repayments to save its ailing economy, the Singapore Post reported.

According to a statement from the president's office, Sri Lankan President Gotabaya Rajapaksa told Chinese Foreign Minister Wang Yi that "it would be a great relief to the country if attention could be given to restructuring debt repayments. as a solution to the economic crisis that arose in the face of the COVID-19 pandemic." According to central bank data, Sri Lanka owed China $3.5 billion at the end of 2020, excluding loans to state-owned enterprises.

Sri Lanka's fourth-largest lender is China, and the country is set to repay $4.5 billion in debt in 2022, starting with a $500 million international sovereign bond repayment on January 18. Rajapaksa also asked China to establish a concessional trade credit scheme for the Chinese. imports and to help Chinese visitors visit Sri Lanka under the bio-bubble concept, the statement said.

As it faces nearing deadlines and a growing balance of payments crisis, Sri Lanka sees the potential for additional loans from China to help meet its debt service commitments, according to the governor of the Central Bank, the outlet reported. Sri Lanka's credit rating was downgraded by Fitch Ratings and Moody's Investors Service due to delays in securing new funds, which are needed to honor loan commitments. Sri Lanka is on the verge of default.

According to figures released by the Central Bank of Sri Lanka, the country's inflation rate hit a new high of 11.1% in November 2021, with food inflation reaching 16.9%. A drop in the local currency, which fell 7.5% against the US dollar in 2021, caused prices to rise.

China has loaned Sri Lanka more than $5 billion for highways, ports, an airport and a coal-fired power station over the past decade. However, opponents claim the funds were used for low-return white elephant projects, which China denies. Sri Lanka is also an important part of Beijing's Belt and Road Initiative (BRI), a long-term strategy to fund and build infrastructure that connects China and the rest of the world. Other countries, particularly the United States, have criticized the BRI, calling it a "debt trap" for developing countries, the outlet reported.

Former US Secretary of State Mike Pompeo has also advised Sri Lanka against doing business with China, calling the Chinese Communist Party a "predator" that continues to violate sovereignty on land and sea. (ANI)

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)