How Rajapaksa Clan And Chinese Loans Put Sri Lanka on Expressway of Economic Collapse (LATEST NEWS)

Bill Burns, the director of the CIA, correctly explains the root cause of Sri Lanka’s current economic disaster. On the basis of the financial history of the country, Burns concludes that Sri Lanka made ill-advised investments in China.

In reality, China wasn’t the only one involved. Public protests following the economic collapse led the Gotabaya Rajapaksa government to fall because of a joint Rajapaksa-China drive. Because Ranil Wickremesinghe is perceived to be a close ally of President Mahinda Rajapaksa, the people of Sri Lanka are unable to accept even the new government and its president.

The Rajapaksa family, which has ruled Sri Lanka since 2005, first aimed to turn the country into a financial powerhouse in the mold of Singapore, then Dubai. When the Covid crisis struck, Sri Lanka’s government was quick to forget that its imports outweighed its exports, and it needed a safe zone of foreign currency reserves in order to remain financially viable in the face of adversity, as it did when the Covid crisis struck. Tourism and remittances, the country’s two most important sources of foreign currency, were severely damaged by the pandemic, and as a result, the government entered an economic default.

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The Sri Lankan government led by the Rajapaksa dynasty began developing the southern province even as the western province with the capital Colombo was seen as the nation’s political and financial core in the name of upgrading the country to become an infrastructure role model.

Although feasibility assessments did not allow for the construction of a new Colombo or a new financial center in Hambantota, Mahinda Rajapaksa hoped to make the area the next political and financial center.

The projects were built with a lot of hype, but they turned out to be financial disasters. Sri Lanka’s attitude under the Rajapaksas can clearly be summed up as “stupid bets,” as Burns remarks. When he says that high-debt Chinese investments are a big element in Sri Lanka’s economic catastrophe, he’s on to something.

The accompanying graph clearly illustrates the causes of the current economic crisis. The World Bank provided statistics from 2005 to 2011, and the Central Bank of Sri Lanka provided data starting in 2012. With scores of members of the Rajapaksa family serving in government positions while the family was in power, the Rajapaksas established themselves as a political dynasty.

His primary goal was to bring an end to the civil war in Sri Lanka between the Tamil militant group LTTE and the Sri Lankan government. In order to purchase lethal weapons from other countries, Sri Lanka needs military assistance in the form of weaponry and ammunition as well as foreign funds. China was the only country willing to help Sri Lanka get lethal weaponry.

Sri Lanka’s gross external debt rose from $11.3 billion in 2005 to $19.5 billion in 2009, the year of the LTTE’s defeat, as a result of the Rajapaksa regime’s four years of civil war.

Mahinda Rajapaksa’s next goal was to turn Sri Lanka into an economic powerhouse like Singapore, which had been ravaged by decades of civil conflict. He couldn’t get the money he needed in a country wracked by decades of civil war.

Mahinda Rajapaksa was able to come up with a solution thanks to China’s continued support. Beijing, on the other hand, arrived with its own plans to use the Belt and Road Initiative to accelerate China’s economic colonization of Sri Lanka (BRI). China pushed for projects like the Hambantota deep sea port and Mattala airport in the Hambantota area that were predicted to be commercially unviable in the long run.

White elephants, as both of these initiatives, are not expected to bring in any considerable revenue when completed. In 2017, after Sri Lanka failed to pay a $1.4 billion payment on Hambantota port, China took possession of the port for 99 years. 15,000 acres of land surrounding the airport were also given to China by the United States. China’s economic colonization of Sri Lanka has its first major success story.

One million passengers per year may be handled at Mattala International Airport’s capacity of one million passengers per year, however, it is also known as the world’s most empty airport. In March of that year, it became operational. There are instances when the airport doesn’t even generate enough to cover its electrical costs, as reported by Sri Lankan media, The $210 million airport was built using commercial loans from China at a high-interest rate. 2% is the interest rate on Chinese government-to-government loans to Sri Lanka; commercial loans, on the other hand, carry interest rates that are many times higher.

How Rajapaksa Clan And Chinese Loans Put Sri Lanka on Expressway of Economic Collapse
How Rajapaksa Clan And Chinese Loans Put Sri Lanka on Expressway of Economic Collapse

In November 2013, a new international connection center in Hambantota was opened, another Korean loan venture that has failed to produce any returns.

It wasn’t until the Rajapaksa dynasty and China planned to build an artificial island reclaimed from the sea that they came up with yet another plan. Despite the fact that Sri Lanka has already defaulted on its debt obligations, the Colombo Port City project, which China has loaned and is now building, is projected to be the next success story in China’s economic colonization of Sri Lanka.

In May 2021, the Colombo Port City Economic Commission Bill was passed by the Sri Lankan parliament under Gotabaya Rajapaksa. Just 700 kilometers from Chennai, India, China now has complete control over the region. The bill’s opponents in Sri Lanka claimed it was an attempt to turn the country into a Chinese colony and weaken the country’s sovereignty. In addition to deeming the measure unconstitutional, Sri Lanka’s Supreme Court ruled that certain of its provisions were unenforceable. In the Colombo Port City area, China has the ability to issue its own currency.

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Why Chinese Loan Is The Major Factor

It is estimated that 47 percent of China’s loans to Sri Lanka are financed by external market borrowing. In 2007, Sri Lanka began issuing international sovereign bonds in order to access loans from the global financial markets. Sri Lanka Short-term loans with a life span of five to ten years are the most common type of market borrowing, with an interest rate of roughly 6%. The Asian Development Bank accounts for 13% of all loans to Sri Lanka. China and Japan, according to official figures, are tied for third place with 10% of the loans total.

However, a closer look reveals that Chinese loans account for a far greater percentage of Sri Lanka’s total debt. By the end of 2021, China will account for 20% of Sri Lanka’s loans, according to a report in The Diplomat. Of this 20%, 14% of it was Chinese debt stock, and 6% of it was in long-term loans.

If we use this figure to calculate Sri Lanka’s current gross external debt, we get $10.144 billion in total debt, of which $3 billion is in term loan facilities. The majority of China’s financing was disbursed after 2005, according to a declaration issued by the Sri Lankan government. From 1971 to 2004, ERD reports, “the number of loan funds collected from China was quite marginal and it dramatically rose after 2005.”

In the last 16 years, Sri Lanka has borrowed $40 billion, with China providing about a fourth of that total. China’s loans and construction of large-scale infrastructure projects in Sri Lanka have had a negative impact on the country’s economy, especially during the epidemic, which was devastating to the country.

Chinese Approach And The $25 Billion Miscalculation

The Mahinda Rajapaksa government was overconfident because of China’s easy access to Sri Lanka’s constant demands for financing and its pledge to develop large infrastructure projects to change Sri Lanka’s fate. Short-term market borrowings and ISBs were among the first types of financing sought.

Almost half of Sri Lanka’s loans now come from market borrowings, which cost $25 billion. It’s not clear how Sri Lanka was able to pay a $500 million bond obligation in January 2022. After falling behind on bond payments in May, the nation was forced to put a halt to all further debt repayments.

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