The bankruptcy of Sri Lanka – this tourist paradise – is a warning to any state that has followed and participated in the new Silk Road of China. Sri Lanka does not have the foreign exchanges needed to buy and import basic necessities, while gas stations are empty and food is scarce in stores. The population is strangled by the uncontrolled inflation that in April exceeded 30%.
The country is heading for absolute bankruptcy. The Prime Minister of Sri Lanka has resigned, while the Sri Lankan government has temporarily suspended the repayment of its loan obligations to its foreign creditors, giving the country the status of a formal bankruptcy.
The country’s executive power, instead of seeking the help of the IMF, which would put it in a restrictive fiscal program while avoiding bankruptcy by providing financial assistance, so that it can meet its future borrowing obligations while taming the unrealistic inflation, the government has chosen to continue borrowing from China and India, taking advantage of the efforts of the two regional superpowers to simultaneously strengthen their influence in Sri Lanka.
The Sri Lankan government, which has been in power for 11 consecutive years, bears the brunt of responsibility for the situation in the country, as it has allowed China-funded infrastructure projects to be financed under very large loan agreements, so that the Sri Lanka to enter the Silk Road as well. At the same time, a reliable mechanism for collecting tax revenues was not created, with the result that the state revenues are meager. This policy led the public debt to 119% of GDP with government revenues being insufficient to repay the country’s foreign debts.
Pakistan
The over-indebtedness caused by the financing of the giant Chinese infrastructure projects in Pakistan, which brought little economic benefits, as well as the inflation that plagues Pakistan causing a sharp decline in the value of the currency, as well as the depletion of foreign exchange reserves are effects of the excessive borrowing that this country received from China. Pakistan’s public debt increased by 73% from 2018 to 2022, under Prime Minister Ibrahim Khan, while in 2019, and despite the fact that the country was forced to turn to the IMF, entered into a new loan earlier this month with Saudi Arabia Arabia for $ 8 billion. Pakistan is essentially drowning in debt. Pakistan will have to find $ 20 billion for fiscal year 2023 to repay its debts, with $ 4.5 billion needed to repay its loans to China and the United Arab Emirates.
Nepal
Nepal (Himalayan state) is another country that has fallen into the trap of the Chinese vision of the Silk Road. At the moment, due to its large borrowing from China, Nepal is facing an economic crisis due to the collapse of the tourist exchange due to declining tourism, but also the reduction of remittances received from immigrants living in the Persian Gulf countries and / and the West. The Nepalese government has been forced to ban imports of any essentials, while foreign exchange reserves are only enough to cover imports for the next six months. Nepal’s trade deficit widened by 32% year-on-year to $ 9.35 billion.
Bangladesh and the Maldives are two other States that have fallen into the trap of their vision of the Silk Road. only the tiny kingdom of Bhutan and India are the only countries in South Asia that have escaped Chinese lures but are facing Chinese claims on their common border with China.
