‘Opaque’ loans from China caused the crisis in Sri Lanka, says USAID chief

“Opaque loans” from China for “headline-grabbing” infrastructure projects in Sri Lanka have caused the ongoing economic crisis in the island country, said Samantha Power, administrator of the United States Agency for International Development (USAID). She also praised India’s swift response to the Sri Lankan crisis. 

“Over the past two decades, China became one of Sri Lanka’s biggest creditors, offering often opaque loan deals at higher interest rates than other lenders, and financing a raft of headline-grabbing infrastructure projects with often questionable practical use for Sri Lankans,” Power said while addressing a program at IIT Delhi.

She questioned China’s absence from relief efforts to Colombo while it faces an unprecedented economic crisis. 

“Biggest question of all is whether Beijing will restructure debt to the same extent as other bilateral creditors,” she said. Furthermore, in the same speech, she praised India’s “swift response” worth over $4 billion in form of lines of credit, food, fuel and fertilizer. 

Significantly, in the last two decades, Sri Lanka borrowed heavily from China, and the international market. Currently, the country of 22 million has been facing an acute shortage of food, fuel, and medicine. 

While Sri Lanka’s loans from China account for almost $5 billion, roughly 10 per cent of the total debt, questions were raised when the projects funded by Chinese loans became a burden and failed to generate revenue as expected. 

Hambantota port, one of such mega projects, launched with great fanfare, which failed to generate enough revenue to pay off debt, had to be handed over to China on a 99-year lease, raising fears of a debt trap. 

Interestingly, despite gaining significant influence and footprint in Sri Lanka, China’s failure to assist the crisis-hit country has left analysts baffled about Beijing’s thought process. The restructuring of loans, which Colombo sought repeatedly, was ignored by China. 

India and Japan, on the other hand, quickly either suspended the loan repayments or agreed for structuring the debts. Response from China has so far been just limited to consolatory messages of “all possible help” to overcome “temporary crisis” without any material assistance.  

(SAM)