Sri Lanka is pushed to the brink as the Chinese delay debt restructuring
Sri Lanka has been a powder keg ever since the people’s uprising in July this year. With the Chinese delay in debt restructuring, things have gotten worse. India and Japan have already initiated dialogue with Colombo on debt restructuring while waiting for China to engage as well. According to Sri Lankan President, Ranil Wickremasinghe, the hope that there would be some agreement from China by December seems to be fading as there was no decision on Sri Lanka’s bilateral and commercial debt restructuring modalities even by mid-November to go up to the International Monetary Fund (IMF) Board in December. There has been rhetorical commitment from China as the Chinese Foreign Ministry Spokesperson Mao Ning stated that, ‘We stand ready to work with relevant countries and financial institutions to continue to play a constructive role in easing Sri Lanka’s debt burden and realising sustainable development.’ However, China’s delay will further burden the ailing economy, and the delay could trigger another public uprising due to economic hardship. The Sri Lankan crisis is an eye-opener for many nations in the Global South that have embraced China’s Belt and Road Initiative (BRI). BRI has two fundamental setbacks: It has triggered financial challenges in managing Chinese debt; second, it poses a significant environmental threat, as most pre-environmental impact assessment (EIA) processes were ignored. The twin challenges have caused considerable reputational damage to China. With the slowdown in China’s domestic economy, its geoeconomics ambitions could shift. The geopolitical realties have changed since the initial years of BRI. China’s foreign policy apparatus exercised a brand of economic statecraft that contained a coercive overhang, which pushed BRI nations to alter their foreign policy to achieve China’s geopolitical ambitions. The geoeconomic tactics used to pull the BRI nations towards Beijing usually involved a large volume of opaque loans, but most of these projects have failed to deliver the expected socio-economic returns. China's National Development and Reform Commission (NDRC) was responsible for BRI implementation, where the design framework intentionally hid the strategic intent and promoted geoeconomics with a ‘collaborative design’. According to Matthew A. Castle from CIPSS, ‘the NDRC outline notes explained BRI is in line with the purpose and principles of the UN Charter and with the ‘Five Principles of Peaceful Coexistence’ evoking Confucian tenets, which is ‘he who wants success should enable others to succeed’. Years after BRI's commencement, the sincerity of the ‘common design’ and the soft power agenda became a concern to many nations due to China’s strategic manoeuvres using geoeconomics as a tool to achieve its geopolitical ambitions.
The Sri Lankan crisis is an eye-opener for many nations in the Global South that have embraced China’s Belt and Road Initiative (BRI).
China's National Development and Reform Commission (NDRC) was responsible for BRI implementation, where the design framework intentionally hid the strategic intent and promoted geoeconomics with a collaborative design.
Sri Lanka, one of the initial South Asian nations partnered with BRI, was a centrepiece of Chinese infrastructure diplomacy, propelled by the Mahinda Rajapaksa regime and continued by subsequent governments. Today, the nation is facing its worst economic crisis due to unsustainable debt and economic policy blunders from the past in which China had a significant role to play. BRI projects failed to capture the expected public attention in Sri Lanka due to its financial losses from projects such as the Mattala airport and the Lotus Tower. There were several problems in the BRI projects, including non-transparency, corruption, environmental concerns, and failure of the business models. GDI was launched at a time when the BRI had been facing severe criticism in countries such as Sri Lanka, where the public viewed Chinese projects as a significant cause of the economic turmoil. GDI will help BRI in two ways. First, it will deflect some of the fierce criticism directed at the BRI by . The green initiative will bring an overall change, baptising the BRI with a fresh outlook. Second, the GDI will assist China in filling gaps in the BRI when it comes to projecting a more globally-oriented initiative. A part of the concern was that the BRI was not perceived as an international project. For instance, China developed the Colombo port city Special Economic Zone (SEZ) for foreign investors. There was nothing global about the project except a strong Chinese image. GDI will bring sustainable-development grants with capacity-building for the BRI projects to tag along with international best practices such as UN SDGs. GDI will help developing nations transfer to low-carbon economies, and China is well-positioned in most BRI host nations to engage in this exercise. GDI will add a layer of climate diplomacy to the existing Chinese infrastructure diplomacy.
A GDI ministerial meeting with participation of 60 countries took place, chaired by Chinese Foreign Minister Wang Yi. Sri Lankan foreign minister, Ali Sabry, joined the forum as a founding member supporting the GDI.
The GDI will be executed in Sri Lanka to regain China’s lost image post the crisis. There are challenges for the local policy circle though. Will China favourably look at restructuring Sri Lanka’s debt? While China engages in bringing the GDI to reconfigure BRI’s image, public trust will further deteriorate by delaying the debt restructuring process. As Michael Kugelman rightly assesses: ‘Sri Lanka’s economy continues to sputter, and core public grievances remain unresolved. The country still seems like a powder keg—susceptible to more mass protests—particularly if the public faces new austerity measures.’ President Wickremasinghe indicated that another uprising was in the making, and he would use emergency powers and the military to crack down any such uprising should it happen. Arresting protestors and front-loading the military is not a solution but a push towards a full-blown insurrection. What is required is to transfer power to the people through a democratic election and not continue with an appointed leader, which only ensures the continuance of Rajapaksa rule from the shadows. Further, the delay in debt restructuring by China, which is affecting the IMF’s financial assistance to Sri Lanka, will impact macroeconomic stability and lead to a further deterioration of economic conditions. If this continues, the uprising will no longer be a choice but an inevitability.
While China engages in bringing the GDI to reconfigure BRI’s image, public trust will further deteriorate by delaying the debt restructuring process.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Asanga Abeyagoonasekera is an international security and geopolitics analyst and strategic advisor from Sri Lanka. He has led two government think tanks providing strategic advocacy. ...Read More +