China’s ‘debt trap diplomacy’ could be the cause of the crisis in Sri Lanka

According to the United Nations Development Programme, Sri Lanka appears to be on the eve of a “humanitarian crisis”. For some analysts, this is due to defaults on Chinese infrastructure loans, most notably the financing of the Port of Hambantota.

Sri Lanka is facing its worst economic crisis since independence in 1948. Amid food, medicine and fuel shortages, rising prices and power cuts, many Sri Lankans believe the “debt trap diplomacy” of China is the source of the crisis for R Ramakumar. The situation is such that President Gotabaya Rajpaksha declared a state of emergency on April 1.


Writing in Channel News Asia (CNA), this professor of economics at the Tata Institute of Social Sciences, R Ramakumar, pointed out that the politics of “debt trap” of China is particularly responsible for the disastrous economic situation in Sri Lanka.

The latter assured that many Sri Lankans believe that Sri Lanka’s economic relations with China are the main cause of the crisis. Defaults on China’s infrastructure loans to Sri Lanka, especially funding for Hambantota Port, have been cited as contributing factors to the crisis.

One of the projects involved is the construction of the port of Hambantota, financed by the Chinese Exim Bank. The port suffered significant losses, so Sri Lanka leased the port for 99 years to the Chinese Merchant’s Group, who paid Sri Lanka $1.12 billion.

In addition, the island nation relies on the importation of many essential items, including gasoline, groceries, and medicines. Most countries keep foreign currency on hand to exchange these items, but a shortage of foreign currency in Sri Lanka is pushing prices up.

The crisis and the economic slump are attributed to currency shortages resulting from the travel ban imposed during the Covid-19 outbreak. This has prevented Sri Lanka from buying enough fuel, leading to extreme shortages of food and essentials such as heating oil and gas.

According to the United Nations Development Programme, theSri Lanka appears to be on the brink of a humanitarian crisis as financial problems worsen. This is why Sri Lankan officials are heading to Washington to meet with representatives of the International Monetary Fund (IMF) to ask for up to $4 billion this year to help the country import essential goods and pay off its creditors.


The Chinese government has decided to provide emergency humanitarian aid to Sri Lanka to help the country deal with the current difficulties, the spokesman for the China International Development Cooperation Agency said.

“China has noticed Sri Lanka’s economic difficulties”, said Xu Wei, the spokesperson, adding that:“As a neighbor and traditional friend of Sri Lanka, the Chinese government had decided to provide emergency humanitarian aid to address the current difficulties.”

“We believe that the government and people of Sri Lanka will overcome the temporary difficulties and maintain economic and social stability and development”said the latter. In addition, in March 2022, The Chinese ambassador to Sri Lanka said China is considering two new sources of financing, a $1 billion loan and a $1.5 billion line of credit to purchase goods from China.

For his part, Chinese Prime Minister Li Keqiang indicated during his April 24 telephone conversation with his Sri Lankan counterpart, Mahinda Rajapaksa, that “China stands ready to play a constructive role in the stable socio-economic development of Sri Lanka based on the principle of non-interference in its internal affairs and respect for the will of Sri Lanka.”

Sri Lankan Prime Minister Mahinda Rajapaksa said: “Sri Lanka stands ready to strengthen cooperation with China in finance, economy, trade and tourism, promote bilateral FTA negotiations and deepen bilateral cooperation”.

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