Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.

Thank You

Join the forum, it's quick and easy

Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.

Thank You
Would you like to react to this message? Create an account in a few clicks or log in to continue.

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka


Latest topics

» LMF Fundamental Analysis and Valuations
by A+ Today at 9:44 am

by A+ Today at 9:38 am

by Ekanayake90 Today at 9:04 am

» Asia Securities and Bartleets set Target for EXPACK
by God Father Fri Dec 08, 2023 11:23 pm

» Colombo Stock Market: Yet another Opportunity to Exit @ Profit
by D.G.Dayaratne Thu Dec 07, 2023 7:11 pm

» Sri Lanka Stock Market ready to fall below ASPI 10,400
by Rare Wed Dec 06, 2023 1:29 pm

by ErangaDS Tue Dec 05, 2023 10:34 am

by ErangaDS Tue Dec 05, 2023 10:29 am

» Softlogic Holdings PLC (SHL): Opportunity to Enter?
by DeepFreakingValue Tue Dec 05, 2023 10:23 am

» Sri Lanka: Person of the Year 2023
by God Father Mon Dec 04, 2023 11:14 pm

by K.R Sat Dec 02, 2023 8:57 am

» How will Non Performing Loans (NPL's) affect the Valuations of Banking Sector shares?
by CHRONICLE™ Fri Dec 01, 2023 5:25 pm

by D.G.Dayaratne Fri Dec 01, 2023 7:22 am

» නන්දලාල්ගේ මැජික්
by ChooBoy Thu Nov 30, 2023 11:43 pm

by Equity Win Thu Nov 30, 2023 8:27 am

» Ex-pack Corrugated Cartons PLC
by Nandana Withanage Wed Nov 29, 2023 10:44 am

» Significance of the Senior Independent Director (SID)
by God Father Tue Nov 28, 2023 10:12 am

» Will JKH share price reach LKR 200/= ever again?
by soileconomy Tue Nov 28, 2023 6:42 am

» CSE Demutualisation: 3 European firms interested
by samaritan Mon Nov 27, 2023 10:13 am

» Capital Alliance PLC share on a free fall after major transaction
by Beyondsenses Sun Nov 26, 2023 6:28 pm

» Focus on Government controlled entities
by Ekanayake90 Sun Nov 26, 2023 12:57 pm

» Sri Lanka Stock Market: ASPI Movement
by DeepFreakingValue Sat Nov 25, 2023 8:39 pm

by sandamal Fri Nov 24, 2023 10:46 am

by soileconomy Fri Nov 24, 2023 6:53 am

by Beyondsenses Wed Nov 22, 2023 8:57 am


Submit Post
ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post


Send your suggestions and comments

* - required fields







The information contained in this FINANCIAL CHRONICLE™ have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein. FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever. Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, FINANCIAL CHRONICLE™ blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

Further the writers and users shall not induce or attempt to induce another person to trade in securities using this platform (a) by making or publishing any statement or by making any forecast that he knows to be misleading, false or deceptive; (b) by any dishonest concealment of material facts; (c) by the reckless making or publishing, dishonestly or otherwise of any statement or forecast that is misleading, false or deceptive; or (d) by recording or storing in, or by means of, any mechanical, electronic or other device, information that he knows to be false or misleading in a material particular. Any action writers and users take in respect of (a),(b),(c) and (d) above shall be their own responsibility, FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental violation of securities laws of any country, damages or loss arising out of the use of this information.

You are not connected. Please login or register

Who is pouring oil on the flames in Sri Lanka?

Go down  Message [Page 1 of 1]

God Father

Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Who is pouring oil on the flames in Sri Lanka? 07796029d10b45fe9fcc77e4f8ffb4f7

Sri Lanka is in a dire situation. Known as the "Pearl of the Indian Ocean," the country is facing the worst economic crisis since independence in 1948. Western media has taken this opportunity to hype up the so-called Chinese debt trap, alleging that Sri Lanka is on the verge of economic collapse because it was unable to repay its large loans from China. They add that the Belt and Road Initiative (BRI) has brought a heavy burden to the Sri Lankan economy, and constantly pitting the Sri Lankan government and its people against China, while turning a blind eye to those who are really behind all this.

Caught fire by accumulated debt

There are many causes for Sri Lanka's economic crisis, among which the foreign exchange crisis is the main factor. Since its independence, Sri Lanka has suffered from internal and external troubles. It has been carrying trade deficits and relying on loans for years. Due to the combined impact of a string of terrorist attacks in April 2019, the COVID-19 pandemic and the Russia-Ukraine conflict, the country's pillar industries including tourism, overseas remittances, tea and garments have been hit hard and it has rapidly drained its reserves.

What's worse, Sri Lanka introduced a low tax regime in late 2019, which caused the government a loss of more than $1.4 billion in revenue, further limiting its capability to purchase foreign exchange.

While foreign exchange earnings have plummeted, Sri Lanka's import payments have continuously increased. Sri Lanka's production materials and daily necessities are highly dependent on imports, and the armed conflict between Russia and Ukraine has triggered a surge in global commodity prices. Taking energy as an example, 60 percent of Sri Lanka's electricity is generated from coal and oil, which both need to be imported. The global oil price increased by six-fold from $18 a barrel in April 2020 to above $100 a barrel now.

At the beginning of 2021, the Sri Lankan government banned the import of chemical to prevent the outflow of foreign exchange, resulting in large-scale crop failures, and the government had to replenish food reserves from abroad, further exacerbating the shortage of foreign exchange.

Sri Lanka's foreign exchange reserves have plummeted by about 70 percent in the past two years. Its reserves stand at around $1.9 billion at the end of March, while its foreign debt obligations for this year exceed $7 billion. On April 12, the Sri Lankan government officially announced the temporary suspension of foreign debt payments, defaulting on its $50.7 billion foreign debt. On May 19, the government announced that it had failed to repay a total of $78 million in debt, which marked the nation's first sovereign debt default since it gained independence.

The U.S.-led West have been pouring oil on the flames after setting fire

Although Sri Lanka has been in debt for many years, it has previously maintained a good record of foreign debt repayment. The Russia-Ukraine conflict, which was caused by the U.S.-led West intervention, had a very serious impact on Sri Lanka's economy, which was already in bad shape, and leading to its default. It is the hegemony and the greed of capital of the U.S.-led West that are the root causes of the economic crisis faced by Sri Lanka and other developing countries.

The mounting sanctions imposed on Russia by the U.S.-led West have been pushing global food and energy prices to new heights, and there are also restrictions on Russian financial and aviation sectors. The food prices surged in Sri Lanka due to soaring prices of wheat and corn triggered by the Russia-Ukraine conflict.

Sri Lanka exports about $150 million of tea and other commodities to Russia annually. However, as more and more Russian banks are banned from the SWIFT network, Sri Lanka was unable to obtain foreign exchange by exporting to Russia. In January this year, Russia was Sri Lanka's largest source of tourists, but in March, the state-run national carrier of Sri Lanka suspended its flights to Russia due to the Western sanctions.

In terms of debt structure, most of Sri Lanka's debts are in the form of international sovereign bonds, and the Asian Development Bank and Japan are its main lenders. According to Central Bank of Sri Lanka data, as of October 2021, Sri Lanka's international sovereign bonds reached $11.82 billion, accounting for 34.1 percent of total external debt. In terms of bilateral loans, Japan and India ranked first and second, with $3.54 billion (10.2 percent) and $790 million (2.3 percent) respectively, higher than China.

China's bilateral loans to Sri Lanka are not the largest. Even with financial market loans (Exim Bank of China) included, it only accounts for 10 percent, and most of the loan interest rates are much lower than the capital markets, among which over 60 percent are concessional loans, and the remaining 40 percent are interest-free loans. So Sri Lanka's debt repayment problems have very little to do with Chinese loans.

In fact, Sri Lanka is not the only country that suffers from the economic crisis. The Federal Reserve and other major central banks have raised interest rates to quell inflation, which drives up borrowing costs and may bring debt crisis to many developing countries. Turmoil triggered by rising food and energy prices is already gripping countries like Egypt, Tunisia and Peru. Scarcities of food, energy and finance put more than 70 countries at risk of following Sri Lanka into default, says United Nations, according to a recent report by the Wall Street Journal.

The trap of so-called Chinese debt trap

In recent years, governments and media of the U.S.-led West have tied the concept of the "debt trap" to China as a weapon to tarnish China's reputation and the BRI in order to counter China's promotion of BRI, maintain their political and economic hegemony, and prevent the developing countries from participating in the BRI.

Who is pouring oil on the flames in Sri Lanka? 5d51b0de42b6418b87d1d4eabd674ce7
A view of Sri Lanka's Hambantota International Port, May 6, 2021. /Xinhua

The Hambantota Port is a most cited case by the U.S.-led West in hyping up the "Chinese debt trap." It is falsely claimed that China used the port to drag Sri Lanka deep in debt and would transform it into a military base in the future. But the fact is that the Hambantota Port added $1.12 billion of foreign exchange reserves for Sri Lanka to repay some short-term foreign debts. What's more, the Hambantota Port is difficult to use as a military base due to water depth limitations, and the Sri Lankan government has explicitly prohibited the use of the Hambantota Port as a foreign military base.

On the contrary, India has recently partially acquired the Trincomalee Port situated on the eastern coast of Sri Lanka, which is a large natural port from a military point of view and used to be a strategic oil terminal for the British army during World War II. Because the United States intended to build a "economic corridor" and highway from Trincomalee to Colombo through the the Millennium Challenge Corporation (MCC), which is obviously for military purposes, the United States, India and other countries have played deaf and dumb.

As a close neighbor of Sri Lanka, China has been sincerely helping Sri Lanka develop its economy. Instead of causing any crisis, China has over the years provided selfless help and firm support to Sri Lanka in socio-economic development. Especially since the onset of the COVID-19 pandemic, China and Sri Lanka have supported each other and pulled through together, writing a new chapter of China-Sri Lanka friendship. Chinese Premier Li Keqiang noted that China empathizes with Sri Lanka for its difficulties and challenges, and China is ready to provide much-needed livelihood assistance for Sri Lanka within its capacity.

The Sri Lankan government have explicitly refuted the myth of "Chinese debt trap" time and time again. Recently, Ranil Wickremesinghe, Sri Lanka prime minister and leader of the United National Party, expressed his gratitude to China for assisting Sri Lanka in overcoming difficulties in all aspects and stressed that the government will continue to attach great importance to developing ties with China and push forward BRI projects in the country, accelerate the development of the Colombo Port City, Hambantota Port and other major cooperation projects, make every effort to protect the safety of Chinese institutions and personnel in Sri Lanka.

The international community, especially the developing countries, need to be wary of the trap of "Chinese debt trap" set by the U.S.-led West,which is a systematic move orchestrated by the U.S. to obstruct the BRI. Countries should endeavor to safeguard their national security and development interests, strengthen international cooperation, including those under the BRI, increase their representation and voice in global economic governance, and promote the establishment of a more just and reasonable international economic order. For developing countries including China, underdevelopment is the biggest trap, and the political, economic, military, and cultural hegemony of the U.S.-led West is the real trap.

(If you want to contribute and have specific expertise, please contact us at Follow @thouse_opinions on Twitter to discover the latest commentaries in the CGTN Opinion Section.)

Editor's note: Feng Guoquan is a commentator on international affairs. The article was first published by The People's Daily in Chinese on June 11, 2022. The article reflects the author's views, and not necessarily those of CGTN.

Share this post on: reddit

No Comment.

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum