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China's BRI Loans Becoming 'Big Headache' for South Asian Nations - Ex-Indian Intel Officer

© AP Photo / Mark SchiefelbeinClerks stand at a display of goods at a "Belt and Road Products New Year's Marketplace" at a shopping mall in Beijing, Friday, Jan. 10, 2020.
Clerks stand at a display of goods at a Belt and Road Products New Year's Marketplace at a shopping mall in Beijing, Friday, Jan. 10, 2020.  - Sputnik International, 1920, 04.04.2022
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The Belt and Road Initiative (BRI) is a series of overland and maritime connectivity and infrastructure projects being developed across the globe with the financial backing of China. Nearly 140 countries in Europe, Asia, and South America have signed up for the BRI so far. Chinese investments in BRI projects could reach $1.3 trillion by 2027.
A former military intelligence (MI) specialist in the Indian Army has blamed the "liberal loans" extended under the Beijing-backed Belt and Road Initiative (BRI), or the One Belt One Road (OBOR), for worsening the economic crisis in Sri Lanka.

"China's offer of liberal loans for Sri Lanka's ambitious infrastructure projects, with marginal profitability, are one of the reasons why the country finds itself saddled with unviable foreign debt", Colonel R. Hariharan, an expert at the Indian security think tank Chennai Centre for Chinese Studies (C3S) who served as an intelligence chief of the Indian Peacekeeping Force (IPKF) to Sri Lanka, told Sputnik.

At present, the Colombo International Container Terminal (CICT) is being developed by Beijing's state-backed China Merchant Port Holdings, a Hong Kong-headquartered company. Hariharan also highlights that Colombo was "forced" to award a controlling stake and a 99-year lease in the Hambantota port to the same Chinese company in 2017 for its inability to repay a previous debt.
Another state-backed enterprise, the China Harbour Engineering Company (CHEC), is developing the state-of-the art Colombo International Financial City on land reclaimed from the sea near the Sri Lankan capital.

"Servicing these loans is becoming a big headache of governments across South Asia, be it Sri Lanka, Nepal, Maldives, or Pakistan", reckons Hariharan. "Other countries like India and Japan have given aid on concessional terms whereas China's commercial lending carries higher interest".

Hariharan notes that another drawback of Chinese loans under the BRI relates to the lack of emphasis on empowerment of local communities, who could build economic resilience in times of crisis such as the one Sri Lanka currently faces.

"The Chinese companies mostly employ Chinese labour. So, in a way, benefits of the project in the near-term flow back to China. Other countries employ local contractors", the think tank analyst says.

Estimates of the Chinese loans as well as sovereign bond payouts owed to China are between 15-20 percent of Colombo's overall foreign liabilities, as per the Indian expert.
While Sri Lanka is obliged to pay a $1 billion repayment on sovereign bonds in July, debt repayments to the tune of $7 billion are due at the end of the year. In comparison, data from Sri Lanka's Central Bank pegged the current foreign exchange reserves at $2.3 billion, as reported by Reuters.
Since February, India has extended two credit lines of $1 billion and $1.5 billion to Sri Lanka to purchase essential items to help overcome the crisis. Nearly $1.4 billion has been separately provided by Delhi since January in the form of current swap and loan deferments.
On the other hand, Beijing is yet to take a final call on Sri Lanka's debt restructuring request or an economic assistance package, the Chinese Ambassador to Colombo Qi Zhenhong said at a press briefing on 21 March.
The request was made by Sri Lankan President Gotabaya Rajapaksa during Chinese Foreign Minister Wang Yi's trip to Colombo in January of this year.
Saying that Beijing may ultimately grant Colombo a "loan package" to help it tide over its economic difficulties, he expresses concerns about the terms of any future assistance from Beijing, given Sri Lanka's plummeting attractiveness for investors.

"Sri Lanka has been losing the lure of China lately", he says.

'Poor Fiscal Management' by Sri Lankan Government to Be Blamed as Well

The Indian expert says that the Sri Lankan government's "poor fiscal management, [alleged] corruption, and financial indiscipline" were also factors behind the "huge borrowing" and sent out the wrong signal to investors, thus compounding the crisis.
Sri Lanka's public debt rose from 94 percent of GDP in 2019 to 119 percent in 2021, amid dwindling forex reserves which affected its tourist-reliant economy during the COVID-induced travel curbs.
Dwindling currency reserves, ballooning public debt, and current account deficit caused the value of the Sri Lankan rupee to plunge by more than 36 percent last month, resulting in runaway inflation.
Lack of fuel supplies resulted in 10-12-hour power cuts besides shortages of food items, triggering street protests across the country.
The economic crisis soon spiralled into a political issue, with the entire federal cabinet resigning on Sunday.
Only President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa haven't stepped down from their positions, as the country awaits a new cabinet which may comprise politicians from all of the nation's political factions in a bid to assuage rising public anger over economic mismanagement.

'China Heavily Invested Across South Asia Now'

Hariharan says that it's not only Sri Lanka, but servicing the Chinese loans extended under the BRI is becoming a problem for other South Asian nations such as Nepal, Pakistan, and the Maldives, with all of them being part of the BRI.
India has been critical of the BRI, with Foreign Minister S. Jaishankar in February warning smaller nations to be careful of "debt-trap" diplomacy. The remarks were made by Jaishankar during an appearance at the Munich Security Conference.

"Undoubtedly, China has bigger financial clout than India. But China's BRI commitments are huge and already it is invested in South Asia for around $60 billion", he notes.

In Nepal, local media outlets have been pointing out that none of the nine agreements signed between Kathmandu and Beijing during Wang Yi's visit last month concerned the BRI.

"While stressing the country's economic priority, the prime minister during his meeting with the Chinese foreign minister and state councillor said that a loan is not what Nepal prefers at this point and sought more projects from China under grant assistance", Govinda Pariyar, the publicity chief of Nepali Prime Minister Sher Bahadur Deuba, quoted the Nepalese leader as telling Wang.

In the Maldives, around 80 percent of overall debt payments were owed to China, as per 2021 budget data reported by ex-president and current parliamentary speaker Mohamed Nasheed.
Former Maldives President Mohamed Nasheed. (File) - Sputnik International, 1920, 18.11.2020
Asia
Won't Be Able to Repay China Even if We Sell Our 'Grandmother's Jewellery': Ex-Maldivian President
Similarly, the International Monetary Fund (IMF) has said that in the case of Pakistan, a fifth of its public debt is owed to China, which amounts to around $18.4 billion.
The China-Pakistan Economic Corridor (CPEC), the flagship project of the BRI, traverses the length of Pakistan and ends at the port of Gwadar.
During his visit to Beijing this year, Pakistan's interim Prime Minister Imran Khan is reported to have requested that Chinese President Xi Jinping roll over debt to the tune of $4.2 billion owing to Islamabad's inability to service the loans. Reportedly, the request was agreed to during Wang's trip to Pakistan last month.
Under CPEC, Beijing has extended loans to develop infrastructure and connectivity projects, including power plants, highways, and railway lines.
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