Chinese-Funded Projects Deepen Sri Lanka's Economic Woes

• Published date: 23 December 2022
• Publication title: ASEAN Tribune

23 December 2022 (Voice of America) During the past decade, China funded the construction of massive infrastructure projects in Sri Lanka meant to boost the island nation's economy. However, after the economic collapse of the tiny Indian Ocean country earlier this year, there were questions whether these projects had contributed to the worst crisis it has ever faced.

A port city that dominates Colombo's seafront was built on a 269-hectare patch of land reclaimed from the sea. It was to become a thriving business and financial hub, but it is virtually deserted. An international airport commissioned nearly a decade ago at Mattala city is called the 'emptiest airport in the world.' Both the Chinese-funded projects are seen as 'white elephants' that have added to Sri Lanka's debt.

'The airport is not functioning. The Colombo port city was supposed to attract international investors, but there is not a single investor right now,' said Asanga Abeyagoonasekera, a Sri Lankan security and geopolitics analyst. 'There is a question over the revenue model of all these projects because they are not financially viable. They were built with unsustainable large amounts of borrowings with high interest rates.'

The focus zeroed in on the Chinese projects when Sri Lanka ran out of foreign exchange to import food, fuel and medicines earlier this year. The catastrophic economic downturn has pushed many in the nation of 22 million people into poverty. In what was once a middle-income country, living standards have plummeted as inflation rages. The World Food Program estimates that nearly 6 million people need food assistance.

The country's crisis is blamed on economic mismanagement by the previous government led by former president Mahinda Rajapaksa and the COVID-19 pandemic that led to a loss of vital tourism earnings in the scenic Indian Ocean country.

Analysts say the billions of dollars spent on Chinese-funded projects deepened Sri Lanka's woes. Estimates are that the share of Chinese loans in Sri Lanka's $40 billion debt range from 10% to 20%.

'China is known for working out arrangements that often turn out much costlier than just looking at the paper would tell you,' said Harsh Pant, vice president for studies and foreign policy at the Observer Research Foundation in New Delhi. 'The inability of the Sri Lankan political class to understand the long-term consequences of the kind of short-term gains that they were making from China has allowed this to happen.'

Sri Lanka was one...