Sri Lanka’s top envoy to China has said the island nation will never default on its loans and will meet its obligations to lenders this year – expected to amount to US$5 billion – despite being caught in an intense debt crisis. Dr. Karunasena Kodituwakku, Sri Lanka’s ambassador in Beijing since 2015, also rejected the concept of “debt-trap diplomacy”, while admitting debt pressure on the country, known as “the Pearl of the Indian Ocean”, was huge. “Fortunately during 2018 we were able to handle repayment obligations very carefully without facing serious difficulties, and this year is very critical due to payments within the first few months, and in February and March, however all debts have been settled,” Kodituwakku said. “I believe even for the rest of this year we’ll be able to manage, and next year onwards, we’ll still have to pay back, but not such a heavy obligation. Therefore, by 2020 onwards, our situation would be much more favourable. We’ll be able to invest more capital from our own funds for development, including improvement in the quality of people’s lives.” Kodituwakku was speaking to the South China Morning Post at the Sri Lankan embassy in Beijing earlier this month, before the devastating Easter Sunday bombings, which have so far killed at least 290 people. Sri Lanka’s debts include loan repayments to individual nation lenders such as Japan and China, as well as to multilateral financial institutions like the IMF. Some of the country’s most controversial borrowings have been from China, as part of Beijing’s “Belt and Road Initiative” to grow global trade through the financing of infrastructure projects. Kodituwakku, a veteran politician and economist in Sri Lanka, said his country was seeking to revive some of the huge but underused infrastructure projects funded and constructed by China, which are often cited by belt and road critics as dark examples that China is using easy loans to lure countries to gain influence. “If China forced us to obtain loans, you could call it a trap, but every cent we have from China, those were decisions made in Sri Lanka and every loan given to us was on our own request,” Kodituwakku told the Post . “We made a request with the intention to accelerate our development agenda. With goodwill the Chinese authorities and relevant agencies provided the loans,” he said. China is one of Sri Lanka’s major lenders, accounting for an estimated 10 per cent of its total foreign debt, and most of the Chinese loans are on concessional terms. Large infrastructure projects financed by Chinese money under President Xi Jinping’s signature belt and road plan include the Mattala Rajapaksa International Airport, the Mahinda Rajapaksa International Cricket Stadium, and – most controversially – the Magampura Mahinda Rajapaksa Port, all in or around Hambantota, in southern Sri Lanka. The maritime port, named after former president Mahinda Rajapaksa, was built for about $1.4 billion, 85 per cent of which was funded by the Exim Bank of China. It is the most cited example of how poor, but strategically important, countries like Sri Lanka are now deeply in debt to China. Faced with a cash shortage in 2017, the embattled Sri Lankan government handed over the port and 15,000 acres of associated land to China Merchants Port Holdings for 99 years. Suez Canal and Hambantota: spot the difference The deal intensified deep concerns in the region and around the world that China had gained a strategic foothold along a critical commercial and military waterway between Asia and Europe. Both Colombo and Beijing have said the port would not be used for military purposes, a point reiterated by the ambassador. “The Hambantota port is only an economic cooperation venture, and Sri Lanka provides security to the port,” he said. “The security obligation and the seashore belong to Sri Lanka,” Kodituwakku said. Even in China, the Hambantota port project is often cited as one of the lessons Chinese investors have to learn, especially when it failed to attract the expected number of vessels, dashing their expectations of turning it into a Sri Lankan Shenzhen. Beijing-based think tank Grandview Institute suggested in its latest report on China’s investment in overseas ports that commercial considerations should play a greater role in assessments. “The Chinese enterprises investing overseas have paid particular attention to the strategic significance of the target ports, but have made obviously insufficient commercial assessment and cost forecast of the ports, foreshadowing the heavy debts and causing great operating pressure,” the institute said. Kodituwakku defended the investment decisions and said his government was seeking to revitalise the Hambantota port through a public-private partnership (PPP). An Indian company with airport management experience was also expected to join the Sri Lanka Port Authority to operate the Mattala Rajapaksa International Airport – 18km from Hambantota – in a bid to turn around its reputation as “the world’s emptiest international airport”, because of its low number of flights. There is no sign that China’s ambitious investment in Sri Lanka has diminished – in March, the Exim Bank signed an agreement for a loan of nearly $1 billion to build a highway between the Hambantota port and a planned industrial zone in the central region of Kandy. It was the single largest loan to date approved by the Exim bank for Sri Lanka. China to give US$989 million loan to Sri Lanka for new motorway And, earlier this year, Chinese workers completed land reclamation next to Sri Lanka’s capital Colombo as part of the $1.4 billion Colombo Port City project, which Chinese Ambassador Cheng Xueyuan said was “an important project of the Belt and Road Initiative”. The Sri Lankan government aims to position the Colombo port, at the entrance to the Indian Ocean, as a key hub to rival Dubai and Singapore. “There are ups and downs when you do business,” Kodituwakku said. “When the feasibility studies were not being done properly, these problems may come but, again, as sovereign, independent countries, we have the right to talk to each other, and come to a compromise. That’s what happened in Hambantota.” Singapore firm to build oil refinery next to Chinese-run port in Colombo The surge in China’s presence in Sri Lanka has also raised speculation that the island nation could be caught up in the rivalry between China and India as Beijing seeks to expand its influence in South Asia and the Indian Ocean. Kodituwakku said that, despite the disputes between China and India, the two countries “complemented” Sri Lanka’s development strategy, with both India and China now its two major trading partners. “Sri Lanka wants to be a shipping hub in the Indian Ocean, not only to serve South Asia, neighbouring Southeast Asia, the Pacific nations, East Africa and even the Middle East,” he said. “Therefore, we must work together very closely. So, although they have their own differences on some issues, Sri Lanka is very fortunate to be able to work very closely with the political leaders of both countries.” Sri Lanka is currently in talks with China over a free-trade agreement, which Kodituwakku said would open doors for Sri Lanka’s products to the huge Chinese market, as Beijing had pledged to boost its imports and greater market access amid its trade war with the US. The two sides have conducted six rounds of talks, and Kodituwakku said that a deal was likely to be signed before the end of this year. “We want to conclude it as soon as possible this year because this is a good time to enter the Chinese market,” he said.
