China projects ‘worsen economic crisis’
An airport without planes, a revolving restaurant with no diners, a debt-laden seaport – Sri Lanka’s economic crisis has been exacerbated by Chinese-funded projects that stand as neglected monuments to government extravagance.
The nation borrowed heavily to plug years of budget shortfalls and trade deficits, but squandered huge sums on ill-considered infrastructure projects that have further drained public finances.
It is now in the grip of its worst financial crisis since independence from Britain in 1948, with months of blackouts and acute shortages of food and fuel plaguing its 22 million people.
After weeks of largely peaceful protests demanding the government resign over its economic mismanagement, things turned violent on Monday after pro-government supporters clashed with demonstrators, leaving at least eight people dead and more than 225 wounded.
Many of the white-elephant projects that helped fuel the crisis now gather dust in Hambantota district, home of the ruling
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.
Prime Minister Mahinda Rajapaksa – who commissioned many of the projects – announced his resignation on Monday, but his younger brother Gotabaya remains president.
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.
“We were very hopeful when the projects were announced, and this area did get better,” said Dinuka, a long-time resident of Hambantota. “But now it means nothing. That port is not ours and we are struggling to live.”
The Hambantota port was unable to service the US$1.4 billion in Chinese loans rung up to finance its construction, losing US$300 million in six years.
In 2017, a Chinese stateowned company was handed a 99-year lease for the seaport – a deal that sparked concerns across the region that Beijing had secured a strategic toehold in the Indian Ocean.
Overlooking the port is a Chinese-backed US$15.5 million conference centre that has been largely unused since it opened. Nearby is the Rajapaksa Airport, built with a US$200 million loan from China, which is so sparingly used that at one point it was unable to cover its electricity bill.
China is the government’s biggest bilateral lender and owns at least 10 per cent of its US$51 billion external debt. But analysts believe the true amount is much higher if loans to state-owned firms and Sri Lanka’s central bank are taken into account.
“Fiscal profligacy over many decades and weak governance … got us into trouble,” said Murtaza Jafferjee, chairman of Sri Lanka’s Advocata Institute think tank.
The economic woes weighed heavy after the pandemic torpedoed vital revenue from tourism and remittances, leaving the country unable to purchase essential goods from abroad.
The government had sought to renegotiate its repayment schedule with China, but Beijing instead offered more bilateral loans.
That proposal was scuttled by Sri Lanka’s appeal for help to the International Monetary Fund – a move that has aroused consternation as Chinese lenders will now likely need to take a haircut on their loans.
“China has done its best to help Sri Lanka not to default but sadly they went to the IMF and decided to default,” Chinese ambassador Qi Zhenhong told reporters last month.