NEW DELHI: From exacerbating the bankruptcy of Sri Lanka to leaving Pakistan with staggering debt, China has been a silent orchestrator of the economic crisis that has engulfed the two South Asian countries.
For many years, experts have been warning low- and middle-income countries against China’s “debt-trap” diplomacy.
Yet, with the help of friendly government heads and the lure of big-ticket investments, China managed to bag billions of dollars worth of projects under its Belt and Road Initiatives in vulnerable countries like Sri Lanka and Pakistan.
But the result of years of unsustainable loans has now come back to haunt these struggling economies which are on the verge of collapse unless the International Monetary Fund (IMF) comes to their rescue.
White elephant projects
While the crisis in Pakistan and Sri Lanka has been a result of several factors — from misgovernance to the Covid-19 pandemic — there is little doubt that China’s lending also played its part.
China’s BRI programme has been criticized by western nations in recent years, with the US and others accusing it of using “debt diplomacy” to make developing nations more dependent.
China has denied such accusations and said that the projects infused much-needed money into developing nations.
However, the “fairytales” spun by China ended up not only aggravating the debt crisis in countries like Sri Lanka and Pakistan but also left them with billions of dollars worth of unfinished projects.
“One of the reasons successive Pakistani leaders avoided reform was that they believed it easier to accept the fairytales spun by China. Far from being an economic savior for Pakistan, however, it is now clear that Beijing used the China-Pakistan Economic Corridor (CPEC), foolishly acceded to by PM Shehbaz Sharif’s brother Nawaz, as a mechanism to enslave Pakistan,” said Michael Rubin, a senior fellow at the American Enterprise Institute.
Just like Islamabad, the BRI sapped Sri Lanka’s resources with a series of white elephant projects.
Most of these projects now gather dust in Hambantota district, home of the ousted Rajapaksa clan, which used its political clout and billions in Chinese loans in a failed effort to turn the rural outpost into a major economic hub.
The centrepiece of the infrastructure drive was a deep seaport on the world’s busiest east-west shipping lane, which was meant to spur industrial activity. Instead, it has haemorrhaged money from the moment it began operations.
Overlooking the port is another Chinese-backed extravagance: a $15.5 million conference centre that has been largely unused since it opened.
Nearby is the Rajapaksa airport, built with a $200 million loan from China, which is so sparingly used that at one point it was unable to cover its electricity bill.
In Pakistan, the much-hyped CPEC projects are either running “woefully” behind schedule or yet to even start.
According to a report in May, only three out of the 15 projects in Gwadar have been completed so far.
A dozen projects worth up to $2 billion remain unfinished including water supply and electricity generation, according to the CPEC Authority.
A debtly blow
Even as the projects remain unfinished or in limbo, the debt owed to China has continued to soar over the years.
According to documents released by Pakistan’s finance ministry, Pakistan’s total public and publicly guaranteed external debt stood at $44.35 billion in June 2013, just 9.3% of which was owed to China. By April 2021, this external debt had ballooned to $90.12 billion, with Pakistan owing 27.4% —$24.7 billion — of its total external debt to China, according to the International Monetary Fund (IMF). In fact, Pakistan needs to repay China more than double the amount it owes the IMF in the next three years.
Meanwhile, Sri Lanka owes China some $6.5 billion in financing including development bank loans and a central bank swap, according to data from the Institute of International Finance.
Overall, China accounts for 10 per cent of Sri Lanka’s debt.
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