Sri Lanka determined to continue to borrow from China

Ravi KarunananaykeSri Lanka is determined to continue to borrow from China despite racking up a debt pile worth 75% of its economy, the country’s finance minister told GlobalMarkets.

Ravi Karunanayake said Sri Lanka would continue to do business with China. “Sure [Chinese FDI] concerns us — but China has deep pockets, and it’s better to have some investment than no investment at all,” he said.

“So long as we don’t sell our soul we will be fine. The problem with the capital raised by the [previous government] is that it was [channelled into] questionable investments, meaning that we ended up with unused convention centres and underutilised ports.”

Official government data places Sri Lanka’s total debts at $64.9bn — of which $8bn is owed to China — and the nation’s debt­to­GDP ratio at 75%, more than Germany and on a par with Hungary and Canada. The same data reveal that more than 95% of all government revenue is being used to cut the colossal debt pile.

Many of its financial problems stem from the decision by former President Mahinda Rajapaska to borrower heavily from Chinese development banks — and use that cash to build vast infrastructure projects, many of which, including new airports and highways in the south of the island, remain unfinished, or largely unused.

Other challenges lie ahead, many of which are out of the country’s control, most notably the pace at which the US Federal Reserve plans to hike interest rates in the months and years ahead.

“We are at the mercy of the Fed,” Karunanayake said. Once the fiscal discipline the minister yearns for is in place, the government will, he adds, “focus on boosting inward foreign direct investment, which has eluded us for too long.” (Colombo Gazette)