A certain term had been in use more frequently in recent times to describe the desperate dependency of certain developing countries from Major Global Lending Institutions such as the World Bank, IMF and others with similar portfolios. Even Dominant Economic Power Nations such as China and some Western Countries had been labeled in a similar manner after granting loan facilities to certain developing countries. International Lending institutions and Economic Power Houses like China who are facilitating loans to countries in need, are often accused of triggering a deadly debt threat for these Nations, though these countries are only willingly accepting these financial borrowings – and not without being asked for collaterals. Loans are ever given in exchange for repayment of the loan principal amount plus interest. Certain electronic and mainstream print media heavily focusing on these loan portfolios describing them as:
Sri Lanka caught in a Debt Trap?
The term “Debt Trap” denotes negativity. It assumes that one owes a huge amount of money to various institutions with less and no projectives to settle it one day. Or in economic terms – a situation where the debtor will not be able to repay the debt incurred. Having a closer look to Sri Lanka’s bilateral economic ties with China, the following chart overviews the scale of projects where both countries had been tied up.
The 2 major China funded projects Port City and the Southern Express Way alone consumed 3 Billion USD as loan or Investment components, which equals nearly 4% of Sri Lanka’s annual Gross domestic Product in 2020 with 81 Billion US Dollars. Port City is owned by CHEC Port City Colombo (Pvt/Ltd) which is 100% owned subsidiary of China Harbor Engineering Company (CHEC). PC will emerge as a brand-new city development combined with a financial City as a special economic zone and International Financial Centre.
Both projects have a detrimental positive impact on Sri Lanka’s infrastructure and may place Sri Lanka in a favorable position as an International Business Hub. The Land on which PC is built had been virtually created on water by reclamation and once again this part too had been funded by the Chinese Government. Tourism, retail and leisure activities are estimated to generate up to 1.8 Billion of direct economic value annually and provide 39.000 direct employment opportunities. Additionally, the indirect contribution by this sector are estimated to amount to 850 Mil USD per annum via local supply chains. A detailed comparison of local/ foreign employment quotas had been researched by PWC in 2020 and details the Land reclamation, Construction and Operational Stages as shown below
The benefits of the Southern Expressway are equally sounding. The reduction of travel time between Colombo to the Mattala Airport, Reduction of traffic congestion on the Colombo – Matara Road with significant relief for the local community residing beside the old Colombo – Matara Main Road. Incentives for new Tourism Developments presently confined to the coastal belts and value enhancements of land and properties in the region.
Sri Lanka and China over many decades maintained a close and cordial relationship, not only in economical sectors but also on the global political agenda. Sri Lanka had been seen as a constant, reliable Friend and no Foe specially in times where the UN assembled for issues related to alleged Human Rights violations in China. Sri Lanka’s support for China was always well received with the Chinese Governments in the past and at present.
One may decide, if China had put Sri Lanka into a debt trap or that China’s support for Sri Lanka is merely based on a decade’s long quality relationship between the two nations. Reader, this assessment is up to you now!