Editorial

Seventy years ago, when Sri Lanka regained its political Independence after centuries of foreign domination, the next goal was to obtain its economic freedom. Today, on the eve of the country’s 70th anniversary of Independence, the Government is preparing to enact a new Active Liability Management Law as Sri Lanka’s debt level tops Rs. 9.3 trillion. The law is aimed at managing the country’s runaway debts overseas.
Foreign banks have taken serious note of Sri Lanka’s high debt level and last week, this newspaper reported that a Japanese bank ,which has been approached for a loan to build the Pothuhera-Galagedera stretch of the Central Expressway, has asked for a Rs. 14 billion advance payment as insurance premium. Though Sri Lanka has an unblemished record of loan repayments on time, the bank has assessed the country’s repayment capacity in the future.

For years, left-wing political parties howled when successive Governments kept taking loans from the United States-dominated World Bank and International Monetary Fund (IMF). Yet, even Trotskyite Finance Minister Dr. N.M. Perera had no option but to make regular pilgrimages to their headquarters in Washington D.C. seeking loans. One of the major economic development programmes of newly independent Lanka was the Gal OyaValley Development Project. It was meant to create a major irrigation network that would transform the Eastern Province into the rice bowl of the country and ensure Sri Lanka was self-sufficient in its staple diet – rice.The entire project was financed by local funds.

Then in the ’80s, the Mahaveli Development Project, a multi-purpose scheme to provide water and electricity was funded by outright grants (aid) from Western countries like Sweden, Germany and Britain.
It was in recent times that foreign loans multiplied. There was visible development but the country got caught in a debt-trap; the good and the bad have been now put at emerging economic power, China’s doorstep.

China’s long-term geopolitical strategy is not confined to Sri Lanka. It has a global outreach spreading its tentacles far and wide. Last week, China’s Foreign Minister Wang Yi defended Beijing’s practice of making hefty loans to developing countries and increasing the receiver’s debt burden. Speaking in Angola, which has been forced to devalue its currency in the face of mounting debts mainly from China, Mr. Wang Yi said his country’s loans to developing countries were “benign”.

Sri Lanka is the latest victim of China’s debt-trap diplomatic offensive. Clearly, Hambantota port was a prize cherry now in its possession using this method. Once it was strangulated by the Chinese loan, Sri Lanka meekly capitulated by leasing the harbour out long-term to the Asian giant. Even if it has short-term commercial viability, it is a crucial asset in China’s ‘One Belt; One Road’ grand global plan.
Much has been said about China’s economic stranglehold over Sri Lanka by trapping the country with loans. But many argue that statistically, China’s loans amount to only US Dollars 2.6 billion of the US Dollars 27.2 billion of sovereign loans and US Dollars 2.0 billion of US Dollars 4.2 billion of private sector and SOE loans.

Therefore, out of Sri Lanka’s total external debt of US Dollars 40.2 billion, Chinese loans amount to US Dollars 4.6 billion – or 11 per cent of Sri Lanka’s total foreign debt. Whether these are high, moderate or low, debt encumbrances are probably debatable. To put it in local currency, at today’s rates Sri Lanka’s total foreign debt at the end of 2016 wasRs. 6.2 trillion. The amount has risen to Rs. 9.3 trillion now, according to our front page news report last week.

Though China’s loans may seem only 11 per cent of Sri Lanka’s total foreign debt, the problem is with the Terms and Conditions attached to these loans and problems of amortization and interest payment even if the total amount is, arguably, not of significant magnitude. In 2017, repayment of Chinese loans amounted to US Dollars 260 million – which when compared with the total repayment of US Dollars of 3.1 billion for all loans that were paid out in 2016, it is seemingly negligible. However, the loans taken previously are going to mature this year (2018) and later on – which is when the real crunch begins to hit home.
The average interest on China’s loans is 3 per cent – much less than any commercial loan or export credits from most European Union countries. Only the World Bank, Asian Development Bank, India, Japan and Korea give more favourable loans than China. India’s Exim Bank’s Lines of Credit are probably the lowest at less than 2 per cent.

Those handling these figures in the higher echelons of office call the Chinese loans scare a “bogey” or a “debt zombie”. Critics say otherwise. They call it “chasing the dragon” – a reference to smoking opium, feeling high the first time when the world seems so peaceful. Then, you take it a second time, it is not the same, but you still want it – and spend all your money – but it is still not the same as the first time and you are stuck with this habit. You start stealing or doing “favours” – whatever gets you money until you come crashing down.

As for China’s grand strategic plan of using the Hambantota port, the argument is which big country doesn’t have such a plan in its backyard – and beyond. And so, as Sri Lanka prepares to celebrate 70 years of Independence, the question of its economic independence will naturally emerge. How much has a free Sri Lanka been sucked into a massive trap, and how will future generations be asked to foot the bill.

When Gal Oya was developed, there was not even a hint of corruption linked to its projects. It was not the case when more recently, the Mahaweli project got underway. Today, corruption in mega projects has become endemic.  Political leaders since 1970 or thereabouts must take the responsibility for this downward trend. Like in economics, the ‘trickle-down theory’ – in corruption, starts from the top.
And, political analysts often point out that debt-funded infrastructure often develops into imperial debt servitude. This is what Sri Lanka must guard against as it goes into its seventh decade of freedom.