Reminding Of The Colonial-Era Practices
Pakistan and Sri Lanka signed a number of agreements with China for massive Chinese debt-funded infrastructure projects a few years back. Now, both the South Asian countries are facing an economic crisis, which has triggered a political crisis in those two countries. China started maintaining a safe distance with Myanmar after a military coup took place there 14 months ago. However, Beijing has put Myanmar under diplomatic pressure since then, as the Asian Giant wants to implement an economic corridor project in the South-east Asian nation. China had also decided to fund some projects in the Maldives. However, a change of Government in the Maldives prompted Beijing to alter its plan. The amount of debt the Maldives owes to China is quite significant, and the entire process, too, is not transparent. Although Beijing claimed that it wanted to help the Maldives boost its trade, the former did not transfer the entire amount and used that portion of money for some other purposes. It may be noted that the Chinese debt is not cheap at all. The interest rate payable to China is three times more than the amount of interest that other countries charge on bilateral aid.
The US has described this phenomenon with the term Debt-trap Diplomacy. As far as South Asian countries are concerned, only Bangladesh has realised this diplomatic trick, and become careful while dealing with China. Despite being a country with a larger economy than Bangladesh, Pakistan’s reliance on Chinese debt-funded projects is more than one-fourth of that of the former. Even Nepal has taken precautionary measures against China’s Debt-trap Diplomacy. Those¸ who have kept their doors open for Chinese debt, are paying the price.
However, China is not solely responsible for the current political turmoil in Pakistan and Sri Lanka. The long-term economic crisis is the main problem of these two countries. The economic crisis has made them even more vulnerable during the COVID-19 Pandemic and the Russia-Ukraine war. Pakistan has borrowed loans 13 times from the International Monetary Fund (IMF) in the last three decades, and most of them have been abandoned halfway due to Islamabad’s inability to meet loan conditions. Hence, Pakistan is on the verge of bankruptcy. The latest USD 6 billion IMF loan is also on hold, as China has come forward to deal with Pakistan’s requests to step up to the plate. However, Beijing refused to change the onerous terms of its project loans. As the de facto lender, China was the last resort of Pakistan especially after others, like Saudi Arabia, refused to sanction loans for the South Asian nation. Pakistan did not seem to be bothered by its loan addiction. In fact, the ousted Prime Minister, Imran Khan, recently asked China for a last-minute roll-over of USD 4.2 billion given as trade credit. As China agreed, Khan asked for more than doubling the credit limit. With this, China has become Pakistan’s biggest creditor.
Meanwhile, the condition of Sri Lanka is the most tragic. In the Island nation, the tax-to-GDP ratio has dropped by a third in the past three years as rates got slashed. As expected, it has a negative impact on the debt rate of Sri Lanka. T N Ninan, the Chairman of Business Standard Private Limited, explained: “Budget deficits soared to an astonishing 14% of GDP, and the roll-over of foreign loans (used unwisely to fill the fiscal gaps) went from difficult to impossible – leading to the foreign exchange crisis and collapse of the Sri Lankan currency.” Surprisingly, the Rajapaksa brothers (President Gotabaya Rajapaksa, Member of Parliament Chamal Rajapaksa, Prime Minister Mahinda Rajapaksa and former Finance Minister Basil Rajapaksa) and their followers have turned to organic farming overnight, and banned the use of chemical fertilisers. “Buoyed by endorsement from organic farming champions, like Vandana Shiva, the Government ignored the evidence that organic farming is only a boutique solution for those with the budgets for expensive food,” stressed Ninan. The Government of Sri Lanka has retreated only after facing a serious agricultural crisis. However, Colombo, seemingly, has no dollar left for importing fertiliser. Now, neighbouring India and Bangladesh have started supplying grain to Sri Lanka.
Of course, China has a role and responsibility in this regard. Nainan stated: “Like a sharp moneylender, it stepped in where it saw opportunity and picked targets carefully. Projects and loans went to resource-rich or strategically-placed countries, 70% of which did not have a good credit rating or any rating at all, and which therefore had few, if any, alternative sources of external finance.” He added: “It protected its interests by holding project assets as collateral, taking over quite a few. Lending has therefore been followed by asset-grab. Co-option of political leaders (like Sri Lanka’s Rajapaksa family) was a necessary component of the strategy.”
Nevertheless, one should acknowledge the fact that it was not possible for China to create troubles for those countries where there was political turmoil and economic instability. Of course, Beijing took advantage of the situation, and also solved the debt problem in many cases. In fact, China helped Pakistan resolve its power shortages. Pakistan and Sri Lanka did not reform their important sectors, thus worsening the situation. They also considered privately-funded infrastructure projects a bad idea. Both Islamabad and Colombo failed to realise the fact that foreign-funded projects would make it difficult for them to repay costly loans. As Pakistan and Sri Lanka are stupid enough to undertake such projects, they should not blame China solely for the crises.
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