'The Debt Quagmire of the Belt and Road' Sri Lanka Requests Debt Restructuring from China

Wang, China's Foreign Minister (left in the photo), is taking a commemorative photo with former Sri Lankan President Mahinda Rajapaksa (elder brother of current President Gotabaya Rajapaksa) before their meeting on the 9th (local time) in Colombo, Sri Lanka. (Photo by AP)

[Asia Economy Reporter Yujin Cho] Sri Lanka, struggling with financial difficulties due to excessive debt from China's Belt and Road Initiative (land and maritime Silk Road connecting China and Eurasia), has requested debt restructuring from Chinese authorities.

According to major foreign media on the 9th (local time), Gotabaya Rajapaksa, President of Sri Lanka, told Wang Yi, Chinese State Councilor and Foreign Minister, who visited his country, that "the increase in national debt combined with economic difficulties caused by COVID-19 has led to severe financial distress," and requested debt restructuring from China.

The debt Sri Lanka owes to China, excluding loans to state-owned enterprises, amounts to $3.38 billion (approximately 4 trillion KRW), which accounts for half of Sri Lanka's total external debt.

Amid the worst economic crisis, Sri Lanka's foreign exchange reserves stand at only $1.6 billion, while the debt due for repayment within this year is estimated to reach $7 billion.

Sri Lanka has pursued a pro-China policy since the presidency of Mahinda Rajapaksa (older brother of current President Gotabaya Rajapaksa) from 2005 to 2015.

Subsequently, by participating in the Belt and Road Initiative, Sri Lanka borrowed funds from China to build large-scale infrastructure such as ports, airports, and road networks, causing its debt to balloon to an unmanageable level.

On top of this, the COVID-19 pandemic has worsened supply and demand and made securing raw materials difficult, causing Sri Lanka's economy to suffer from the worst inflation.

The Central Bank of Sri Lanka announced that inflation rose from 9.9% in November last year to 12.1% by the end of December. During this period, food prices increased by more than 22%.

International credit rating agency Fitch raised concerns about Sri Lanka's inability to repay external debt and downgraded the country's credit rating by one notch from CCC to CC in mid-last month.

According to Fitch, government-issued bonds that Sri Lanka must repay amount to $500 million this month and $1 billion in July. Fitch warned, "Sri Lanka's external debt burden is increasing concerns about a sovereign default."

Political analyst Ranga Kalansuriya said, "China is aiming for greater business opportunities through the Belt and Road Initiative," adding, "It seems unlikely that they will agree to debt restructuring for Sri Lanka, which is facing economic difficulties."

As Western criticism continues that China's Belt and Road Initiative traps partner countries in a "debt trap," attention is focused on how China will respond to this request.

Meanwhile, after completing his tour of Africa, Minister Wang Yi rebutted the Western criticism by saying, "The term 'debt trap' is not true but a baseless fabrication," and added, "The debt trap is a 'trap of words' created by external forces that do not want Africa to grow."

This content was produced with the assistance of AI translation services.