Cash-strapped Sri Lanka rescued by India, Pak economy struggles sans foreign help

Colombo/Islamabad, April 12 Sri Lanka is witnessing an unprecedented economic crisis that has thrown normal life out of gear while its neighbour in the subcontinent, Pakistan, which is going through political turmoil, is on the verge of bankruptcy.

And the common thread between the big economic mess in these countries is unsustainable loans. These countries had received heavy loans, seemingly with unfavourable terms and conditions, from China under the Belt Road Initiative (BRI).

While India has come to Sri Lanka's rescue, there are no friends for Pakistan in difficult times, especially when its recently ousted Prime Minister Imran Khan blamed the US for interfering in its internal matter.

After the international rating agencies had predicted in January that Sri Lanka was on the verge of an economic crisis, Colombo asked Beijing to reschedule its huge Chinese debt burden. However, Beijing rejected the request and asked the island nation to "overcome the temporary difficulties" as soon as possible.

Sri Lanka is under tremendous pressure to pay the debt back to China, which was used to build mega infrastructure projects. Since many of these projects turned out to be commercially unviable, Sri Lanka faces a fund crunch to repay Chinese loans.

The $209 million Mattala Rajapaksa International airport is one such failed project that was funded by a high-interest Chinese loan. It is termed the world's emptiest international airport.

Another such project Hambantota Port has remained without shipping traffic. Faced with little revenue and stringent loan repayment conditions, Sri Lanka was left with no option but to hand over the Hambantota Port to China for 99 years, losing a part of sovereignty and militarily strategic location.

Pakistan is also likely to be forced to lose its control over the Gwadar Port a BRI component thanks to its deteriorating financial health.

Pakistan's foreign reserves fell by around $3 billion this year due to Chinese debts, said the country's central bank, the State Bank of Pakistan.

"This decline reflects repayment of external debt, including repayment of a major syndicated loan facility from China," it said.

Pakistan's external debt has swollen to over $14 billion and half of it is owed to China. The BRI project has a major share in it.

Reeling under economic stress, Pakistan in January asked China for a rollover of the existing debt with additional financial support worth $5.5 billion.

Islamabad had claimed that China had agreed to its request for the rollover. However, China has now asked Pakistan to pay the outstanding due of $55.6 million lent for the construction of the Lahore metro.

The worsening economic situation in Sri Lanka has caused a paucity of foreign reserves to pay for essential imports like medicines, fuel, food, and industrial raw material. Politic and observers have blamed Chinese loans for the deepening economic crisis.

Shashi Dhanatunge, economist and Vice Chairman of the Sri Lankan civil aviation authority, said the loans taken from China triggered the misery.

"Now Lanka is living on a credit card given by India as China refused rescheduling and offered only another loan that could lead to selling more national assets," he said.

Sri Lanka's nearest and historical friend India has come to its rescue as it is providing a financial package to the island nation. It sent two fuel consignments to Sri Lanka to overcome massive power outages.

India has its own objectives besides supporting Sri Lanka as a humanitarian gesture. The ongoing assistance has helped India to save Sri Lanka from China's ulterior motive.

Keheliya Rambukwella, Health Minister of Sri Lanka, thanked India and slammed China for turning its back in time of need. He said the people of Sri Lanka are angry with China over the stringent loan repayment conditions and also with the Chinese projects for affecting local livelihoods and turning parts of the country into a Chinese colony.

India has announced $1 billion credit line to Sri Lanka for addressing the grave challenges to its economy.

However, Pakistan cannot go anywhere to seek financial assistance. The European Union has been furious over Imran Khan's visit to Russia a day before Ukraine was invaded. Pakistan now even cannot seek help from the US, which was once its biggest donor.

The recent controversy over blaming the US for the political coup in Pakistan has worsened the relations between Washington and Islamabad. This leaves Pakistan with the only option of China. But Chinese assistance comes at a greater cost. China has so far provided loans to Pakistan at high commercial interest rates when grants are given.

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