Sri Lanka ‘can’t get out of crisis without China,’ professor says

Sri Lanka won’t be able to resolve its debt restructuring problems without help from China as the country teeters on the brink of economic collapse, according to analysts.

Sri Lanka has defaulted on its debt, plunging the island nation into its worst financial crisis since independence in 1948. In addition to fuel shortage, the country also faces the prospect of running out of food, staples and medicines.

Public frustration over the deepening economic crisis has spilled over to raging street protests in recent months. President Gotabaya Rajapaksa, who has been blamed for the economic mismanagement, was forced to resign and fled overseas last week as anger toward his government spiraled.

Acting President Ranil Wickremesinghe declared a state of emergency on Sunday, in an effort to quell protests ahead of a vote in parliament on Wednesday to elect a new leader.

China’s willingness to provide substantial debt relief to Sri Lanka will be vital to accelerate the debt restructuring and in helping the country get out of its current situation, said Umesh Moramudali, lecturer at University of Colombo.

“You can’t get out of this crisis without China,” Moramudali, told CNBC’s “Streets Signs Asia” on Tuesday. “China needs to agree to restructure its debt, which is not their usual path to take.”

China has invested billions in Sri Lanka under its Belt and Road Initiative. The massive infrastructure program was launched in 2013 and aims to build ports, roads, railways and pipelines across Asia, Europe and Africa.

“Sri Lanka needs to come to a common framework and what the international community is insisting is that China also agrees to a common framework for a debt restructure,” Moramudali added. “It’s not quite clear yet, what level of negotiation we are in, particularly with China.”

At a regular press briefing last week, China’s foreign ministry spokesperson Wang Wenbin said that “shortly after the Sri Lankan government announced to suspend international debt payments, Chinese financial institutions reached out to the Sri Lankan side and expressed their readiness to find a proper way to handle the matured debts related to China and help Sri Lanka to overcome the current difficulties.”

In a high-profile case, Beijing took over a strategic port in 2017 when Sri Lanka failed to service its debt.

Critics have accused Beijing of what they call a “debt trap,” saying countries that owe money to China may be forced to sign over national territory or make steep concessions if they can’t pay up. China denies those allegations.

Sri Lanka said that as of April last year, China accounted for about 10% of its total debt, but Moramudali said in reality that’s probably not the case. 

“I mean this 10% is also an underestimate,” he said,…