Sri Lanka’s currency crisis exacerbated by Chinese debt trap diplomacy

January 13, 2022, 1:05 AM STI

Colombo [Sri Lanka], January 13 (ANI): Sri Lanka’s currency crisis is worsened by its inability to meet financial obligations initiated in cooperation with China on several projects.
Sri Lanka is currently in the throes of a severe currency crisis and faces a daunting challenge in 2022 to meet the debt obligations of International Sovereign Bonds (ISBx) of over USD 8 billion in projects including the Port of Hambantota have forced Colombo to incur losses instead of generating revenue, according to Singapore Post.
The Belt Road Initiative provided commercial loans for infrastructure projects without strict conditionality, normally imposed by the multilateral development banks that drew Sri Lanka into the financial crisis.

Earlier, analyzing Sri Lanka’s debt structure, a recent report (October 2021) from the United Nations Conference on Trade and Development (UNCTAD) said the country suffers from a lack of long-term financing for manufacturing and infrastructure.
Combined with a liberal trade regime, this resulted in a balance of payments crisis, currency devaluation and dependence on foreign loans. Sovereign bond repayments cannot be easily negotiated or restructured, causing unease among policymakers, Singapore Post reported.
The Sri Lankan government mainly relies on China for all kinds of support. Following the ban on fertilizers, it relied on the import of Chinese organic fertilizers. This has also been embroiled in controversy due to quality and contamination issues. To make matters worse, China has pressured the Sri Lankan government to pay out $ 7million as an out-of-court settlement as compensation, amid the forex crisis, as has been reported. observed the Singapore Post.
Earlier, the crisis forced the Sri Lankan government to announce a new economic relief package worth $ 1.2 billion to farmers and the general public on the move, including government workers and retirees.
Meanwhile, Sri Lanka is currently using foreign currency term finance facilities and a Line of Credit (LoC) for the import of essential commodities from friendly and neighboring countries, as highlighted in the report. Singapore post. (ANI)

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