China-Sri Lanka Photograph:( Reuters )
China is using its position at global bodies and money to dictate global terms. Sri Lanka has been looking for a financial lifeline to avoid defaults. But instead of approaching the IMF, the Rajapaksas reached out to Beijing, and made another request for a loan
China is using its position at global bodies and money to dictate global terms. Sri Lanka has been looking for a financial lifeline to avoid defaults. But instead of approaching the IMF, the Rajapaksas reached out to Beijing, and made another request for a loan.
When China's top diplomat Yang Jea-chee visited Colombo, he was greeted by the Sri Lankan president.
According to a report Sri Lanka needs cash to service more than 15 billion dollars worth of debt. Negotiations are underway for a new loan worth 700 million dollars, which will add to Sri Lanka's debt. This is the third loan request by Colombo to Beijing this year.
First, China granted an urgent loan of 500 million dollars to Sri Lanka for the fight against COVID-19. By May, the Sri Lankan cabinet wanted to borrow another 80 million dollars to "improve 105 kilometres of roads".
China seems to have become a lender of last resort for Sri Lanka. According to an estimate in April, Sri Lanka owes close to three billion dollars to its lenders this year alone.
By 2018, Sri Lanka's debt to China stood at five billion dollars in total. By reaching out to China for help, Colombo seems to be ditching the International Monetary Fund, marking a major shift.
In the last 55 years, Sri Lanka has reached out to the IMF 16 times for a bailout. But Sri Lanka has completed only 9 out of 16 IMF programmes. In recent years, Chinese lenders have swooped in to replace the IMF. In 2018, Sri Lanka secured a one billion dollar syndicated loan from China Development Bank.
According to another report, the Bank of China agreed to give a one billion dollar loan to Colombo last year. The COVID-19 outbreak has dented Sri Lankan government revenues, and credit ratings agencies have downgraded Sri Lanka, leaving the country with few options to borrow funds.
Sri Lanka is borrowing more money to repay existing lenders. If Colombo continues on this path, it could meet the fate of Pakistan. And China would have another vassal state in South Asia.