EUROPE ASIA FOUNDATION - Insight
Sri Lanka crisis: a wake-up call for the international community
Widespread unrest and protests are a daily occurrence in Sri Lanka with the storming of the Presidential Palace making headline news the world over. These are results of an unprecedented economic and social crisis in the country due to decisions taken by its leaders in the name of progress. The Government is practically bankrupt and its people cannot afford to eat anymore. Shortages of food and fuel are widespread, yet if rumours are to be believed the former President has accumulated a jaw-dropping amount of wealth globally.
Colombo’s’ crisis has been in the making for many years, corruption is one reason but primarily it’s due to the country’s dependence on imports and borrowings for economically unviable infrastructure projects primarily offered by China through its Belt and Road Initiative (BRI).
Sri Lanka might be the most glaring example how the BRI debt trap can totally ruin a country, but more worryingly it is not the only one. There are many other countries in Asia and Africa which are on the brink of collapse, whilst once glittering projects have now become a millstone around their necks. For example, Zambia, has numerous BRI projects like the new airport, two modern stadiums and a power station mean that they’ve developed an excessive debt situation.
With the fallout of the Russian war against Ukraine and rising interest rates there is a real risk that some 60 poorer countries cannot pay their financial commitments. With many international investors reducing their exposure to emerging markets. Many of these are the same countries who are indebted to China. The consequence is a real possibility of a global financial crisis.
Alarms should be ringing amongst the international community and it should be working out urgent plans as to how to respond. Of course, it has to offer help with debt relief. It’s understood that the ‘Club of Paris’ with creditors from the G7 states are preparing a package of measures. However, for countries which are heavily indebted to China this will not be enough. Therefore, it’s essential that Beijing must become part of debt relief policies. And there lies the nub of the problem, it won’t.
It is important to recognise that the BRI is a strategic policy of China to gain influence around the globe with Chinese standards, norms and characteristics. Therefore, it is unsurprising that China’s approach is extremely hardline and it’s inflexible about repayments, or it demands other ways of compensation like raw materials or land ownership. As a consequence, the dependence of the indebted countries to China gets even greater.
Equally important to ask is how have we responded to demands by other nations and regions to invest in infrastructure and development? India, as well as Europe, have to do more to shape a democratic world order in a fair, transparent and sustainable way.
Former Minister of Environment and Member of European Parliament