The Chinese loans, which the United States has dubbed ‘debt diplomacy’, have been widely criticized internationally. It has been criticized that China is taking advantage of the plight of developing countries by providing loans in the form of loans for various projects and acquiring strategic areas at bargaining power when they are unable to repay. Allegations are now being made that China is turning its back on debt-ridden countries.
This is a time when Sri Lanka and Pakistan, which have close ties with China, are reeling under debt. Imran Khan has stepped down as Pakistan’s prime minister in the wake of rising inflation and the financial crisis. In Sri Lanka, even basic necessities are not available, and everything is on fire. In the national capital, Colombo, people are taking to the streets demanding the resignation of the president and prime minister. According to Bloomberg, China has not yet shown mercy, despite calls from both countries for help.
Sri Lanka had sought help from China at the time of its request for assistance from India as part of its efforts to recover from the financial crisis. India has so far provided over $ 25 billion in aid, including a $ 1 billion credit line. But the $ 2.5 billion demanded from China in the same model is yet to be decided. In this context, Sri Lanka is reportedly seeking another $ 2 billion in assistance from India. Pakistan has promised to repay the $ 4 billion loan it paid off in March, but China has not yet made that decision.
Protesters in Colombo demanding the resignation of Sri Lankan President Gotabhaya Rajapaksa (Photo by Ishara S. KODIKARA / AFP)
Although China is known for lending to more countries than international financial agencies, the Xi Jinping administration has reportedly been concerned about lending for some time. It is argued that the basis for this concern is the increase in lending to other countries and the declining ability of such countries to repay.
Financial experts point out that China has no money to spend in an ‘abundant’ way as it seeks to improve its own economy. Kovid expansion also hit the Chinese economy hard. Currently, Shanghai and Shenzhen, China’s technology and financial centers, are in the lockdown as part of a crackdown on Kovid expansion. China also fears that it may not achieve the expected five-and-a-half percent growth rate this time around.
Sri Lanka has recently decided not to repay its foreign debt immediately. This is part of the policy of spending the existing reserve money on the purchase of essential items. However, there are fears that such non-repayment could put Sri Lanka in trouble again. Sri Lanka has already defaulted on $ 26 billion in foreign debt. At the same time, the growth rate slowed to 1.5 per cent in the third quarter of the 2021 financial year.
In this case, China has not yet considered the need to extend the debt repayment period and the need to restructure the loan. China has ‘advised’ Sri Lanka to complete talks with the IMF as soon as possible. Sri Lanka is also trying to speed this up. The new government in Pakistan is also set to hold talks with the IMF as part of efforts to improve the economy. According to a World Bank report, Pakistan is one of the top 10 borrowers in the world.
English Summary: China hesitates on bailing out Sri Lanka, Pakistan as debt soars