China’s external lending increased massively over the last two decades

Over 25% of the world’s bilateral external debt was owed to China by the end of 2023, making the country the leading debt collector. Two decades ago, the country rarely lent money; Japan lent the highest amount, followed by Germany, France, the United States and the United Kingdom.

Further, over the last two decades, when China’s external lending increased massively, the amount of bilateral external debt owed by countries surged exponentially too. In other words, China is majorly responsible for the rapid rise in external debt in many countries in the last 20 years.

Bilateral external debt is a country’s debt to foreign governments. In this analysis, only bilateral debt is considered and not debt owed to agencies such as the International Monetary Fund and bondholders.

Chart 1 shows the bilateral external debt stocks owed to all countries and to China specifically over time. It also shows (in %) China’s share in the total bilateral external debt stock owed. External debt stock is the debt owed by a country to non-residents repayable in currency, goods, or services. It is the sum of all public, publicly guaranteed, and private non-guaranteed long-term debt and short-term debt.

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The external debt stock owed to all countries increased from $49.5 billion to $741.4 billion between 1973 and 2023. The external debt stock owed to China increased from $1 billion to $193.1 billion in the same period. In percentage terms, the share of debt owed to China remained around the 1% mark until 2003, surged to 16.6% by 2013, and to 26% by 2023.

Chart 2 shows the share of external debt stock owed to top lenders in the 1973 to 2023 period. By the end of 1973 and 1983, the U.S. was the top lender. The U.S. was later surpassed by Japan, which remained the top lender by the end of 1993, 2003, and 2013.

External debt stock owed to the U.S. drastically reduced from 36% in 1973 to just 4% in 2023. Notably, by the end of 2023, the Netherlands was the third biggest lender after China and Japan.

Chart 3 shows the external debt owed by all countries to China in absolute terms and percentage terms. For instance, Pakistan owed $22 billion to China by the end of 2023, which is close to 60% of all the bilateral debt owed by the country. The farther a nation is to the right, the higher the share of its bilateral debt owed to China by 2023. The bigger the size of the bubble, the higher the debt owed to China in absolute terms.

Notably, many countries to which China loaned money were either in a financial crisis which then worsened or later descended into a financial crisis. For instance, Laos, one of the poorest nations in Asia, owed $6 billion to China in 2023, which was over 75% of its bilateral external debt.

The nation’s economic situation turned difficult with persistent high inflation, currency depreciation, and slow growth. In 2021, China opened a high-speed rail line with Laos as a part of its Belt and Road initiative.

Angola, the second largest oil producer in sub-Saharan Africa, owed $17 billion to China, which was about 58% of its external debt. In fact, 16 sub-Saharan nations owe over 50% of their external debt to China.

According to the New York Times, 15 of the 19 cobalt-producing mines in the Democratic Republic of Congo were owned or financed by Chinese firms. The nation owes 88% of its bilateral debt to China.

Sri Lanka, which owes $8 billion to China, about 50% of its bilateral debt, was struggling to repay its debt and handed over the major port of Hambantota to China in 2017.

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An unprecedented financial crash in 2022 brought months of consumer goods shortages, with inflation peaking at nearly 70% that year. File
| Photo Credit: Reuters

Sri Lanka’s consumer prices fell by 2.1% in November, the highest deflation rate recorded by the economically fragile island nation since 1961, official data showed Saturday (November 30, 2024).

An unprecedented financial crash in 2022 brought months of consumer goods shortages, with inflation peaking at nearly 70% that year.

Since then, a $2.9 billion bailout loan from the International Monetary Fund (IMF), tax hikes, and other austerity measures have slowly made headway in repairing the island’s economy.

“Headline inflation will remain negative in the next few months, deeper than previously projected, mainly due to larger downward adjustments in energy prices and reductions in volatile food prices,” Sri Lanka’s central bank said in a statement.

The bank said inflation was likely to return to its target level of five percent in the coming months.

Sri Lanka had already seen deflation of 0.8% in October and 0.5% in September.

President Anura Kumara Dissanayake, who was elected in September, has vowed to maintain the IMF bailout programme negotiated by his predecessor that includes higher taxes and cuts to state spending.

Sri Lanka’s new Cabinet sworn in on Monday, November 18, 2024, in Colombo.
| Photo Credit: Special Arrangement

President Anura Kumara Dissanayake on Monday (November 18, 2024) installed Sri Lanka’s new 21-member Cabinet, days after his National People’s Power [NPP] won a massive mandate in the parliamentary polls. He retained key portfolios of Defence, Finance, Planning, and Digital Economy.

Mr. Dissanayake reappointed Prime Minister Harini Amarasuriya, who along with the team of Ministers, was sworn in at the Presidential Secretariat on Monday (November 18, 2024) morning. Vijitha Herath, who was Foreign Minister in the interim government, will continue in the position.

The 225-member legislature will include several young, first-time MPs and 21 women, the highest female representation in Sri Lankan Parliament, according to local media. The NPP also nominated Sugath Wasantha De Silva, a person with visual disability, to the legislature, through the additional seats it won based on its vote share. It is the first time in Sri Lanka’s history that a person with disability will serve as MP.

President Dissanayake and the NPP rose to power, on a pledge to root out corruption and bring in a new political culture. With 159 seats in Parliament, the NPP government has over a two-thirds majority to take forward its ambitious reform agenda, while rebuilding the country’s broken economy.

Also read: In Sri Lanka, a long and rocky road to economic recovery

A delegation from the International Monetary Fund (IMF) is currently in Colombo to review its ongoing programme. Following this third review, the Fund is expected to release the next tranche of about $337 million of the $2.9 billion-package it pledged to Sri Lanka in 2022, after the island nation declared an unprecedented default on its external debt.  

President Dissanayake “urged the IMF to maintain a balanced approach” that considers the hardships faced by citizens, his office said in a statement. He told the delegation that his government was committed to effective social spending, prioritising “combating child poverty and malnutrition, and providing better support for differently abled individuals.”

As the Dissanayake government works to meet the fiscal targets set out in the programme, scores of Sri Lankans will look to the government for relief from the painful austerity measures that came with it. Two years after citizens took to the streets, protesting the acute shortage of essentials and long power cuts, they are now grappling with an enduring high cost of living, although supplies have been restored.

In his remarks after Monday’s (November 18, 2024) swearing in ceremony, President Dissanayake urged Ministers to use the “immense power” granted to them responsibly. “While the victory is monumental, the weight of the responsibility that comes with it is equally important,” he said, underscoring the need for collective effort.

The election outcome marks the “end of divisive politics” in the country and represents a “call for the freedom of the oppressed and economically marginalised”, he said, adding that the NPP must now switch gears from political activism to strong governance. “From November 14 [general election day], the measure of our success will be the quality of governance we deliver,” Mr. Dissanayake said.

Sri Lanka’s President Ranil Wickremesinghe. File
| Photo Credit: Reuters

Sri Lanka’s Supreme Court on Thursday (August 22, 2024) found President Ranil Wickremesinghe guilty of “arbitrary and unlawful” conduct, in the postponement of local body elections scheduled last year, even as he campaigns hard for a mandate in the September 21 presidential contest.

President Wickremesinghe rose to the island nation’s top office in July 2022, not winning a national election, but through an extraordinary parliamentary vote. He replaced President Gotabaya Rajapaksa, who fled the country and resigned amid mass protests triggered by a severe financial meltdown.  

While local government elections were due soon after — they would have given citizens a say after the country’s economy crashed — the Wickremesinghe administration maintained it could not afford to spend on an election amid urgent efforts towards economic revival.  The elections to Sri Lanka’s local authorities, scheduled to be held in March 2023 and later April 2023, were postponed. The Election Commission said reasons for the move were “beyond” its control and Mr. Wickremesinghe, who is also Finance Minister, came under sharp attack for “blocking funds” needed for the election.

The government’s position coincided with painful austerity measures, including a steep rise in indirect taxes, introduced by the government as part of its International Monetary Fund-led programme aimed at recovery. Crisis-hit citizens, who were reeling under the impact of high living costs, growing poverty, and joblessness, came under greater pressure.

Opposition politicians and rights groups filed multiple Fundamental Rights petitions in the Supreme Court, challenging the government’s position that they said violated the Constitution. A five-member bench led by Chief Justice Jayantha Jayasuriya on Thursday (August 22, 2024) directed the Election Commission to hold the local government election “at the earlier possible”, while holding the “executive branch” liable for the infringement of citizens’ fundamental rights.

The ruling comes at a time when Mr. Wickremesinghe is appealing to Sri Lankan voters to back him, so he can continue his “economic reform” agenda. He faces strong opponents in Leader of Opposition Sajith Premadasa and Leader of the Opposition National People’s Power alliance Anura Kumara Dissanayake, who are fierce critics of Mr. Wickremesinghe’s policies.

President of Sri Lanka Ranil Wickremesinghe.
| Photo Credit: PTI

Sri Lankan President Ranil Wickremesinghe will contest the Presidential election as an independent candidate, his aide said on July 7.

Deputy Chairman of the United National Party Ruwan Wijewardene confirmed that the presidential election will definitely be held and Mr. Wickremesinghe, 75, will contest the election as an independent candidate, News 1st reported.

“Only one leader possesses the knowledge to solve Sri Lanka’s economic crisis. That is Ranil Wickremesinghe. He has proved it with his actions,” he was quoted as saying by the news portal.

On July 7, Election Commission Chairman R.M.A.L. Ratnayake said the electoral body would be legally empowered after July 17 to announce the date for the election.

Mr. Ratnayake added that the commission will announce the date for the next presidential poll before the end of this month.

The Election Commission in May said the presidential election would be conducted between September 17 and October 16.

Mr. Ratnayake said the commission is currently in the process of putting final touches to the 2024 electoral register which will be the basis for the election. Over 17 million would be eligible to vote in the election as per the revised list, officials said.

In April 2022, the island nation declared its first-ever sovereign default since gaining Independence from Britain in 1948. The unprecedented financial crisis led President Gotabaya Rajapaksa to quit office in 2022 amid civil unrest over his inability to handle the crisis.

In July 2022, Mr. Wickremesinghe was elected through parliament to become stop-gap President for the balance term of Mr. Rajapaksa.

Mr. Wickremesinghe, also the Finance Minister, hasn’t made any public statement on his bid for re-election.

“This election isn’t merely about selecting individuals but about choosing the most effective system for our country’s progress. If you believe in the merits of the current approach, let us proceed accordingly,” the President’s Media Division quoted him as saying earlier.

The government under Mr. Wickremesinghe has set in place hard economic reforms as dictated by the International Monetary Fund (IMF) programme.

President Wickremesinghe last month said that his government has finalised a long-delayed debt restructuring agreement for $5.8 billion with its bilateral lenders, including India and China, in Paris to meet a key condition of an IMF bailout.

Copies of the ‘The Conspiracy’ book written by toppled Sri Lankan president Gotabaya Rajapaksa, are on display at a bookshop in Colombo on March 7, 2024.
| Photo Credit: AFP

 

Two years after his dramatic ouster from office by a popular people’s movement, Sri Lanka’s former President Gotabaya Rajapaksa has sought to defend his tainted regime, by launching a book that attributes his political downfall to a “conspiracy” involving foreign and local parties.

Announcing his book ‘The Conspiracy to oust me from the Presidency’ on March 6, Mr. Gotabaya said in a statement: “From the time I was elected President in November 2019, certain foreign and local parties were intent on removing me from power.”

During Mr. Gotabaya’s Presidency from November 2019 to July 2022, Sri Lanka experienced its worst economic crisis since Independence in 1948, as the country ran out of dollars for essential imports, following a host of fiscal decisions taken by his government. Citizens spent days in long queues, struggling to access basic food items, cooking gas, and medicines, while grappling with prolonged power cuts in their homes. Holding his government responsible for their suffering, people from diverse backgrounds took to the streets in a historic protest along capital Colombo’s seafront and in several other district across the island nation.

They relentlessly agitated with the demand “Gota go home”, eventually forcing the besieged leader to flee the country and subsequently resign in July 2022, less than three years since he was elected President, and barely two years after his pulled together a formidable majority in Parliament.

In a significant judgment last year, Sri Lanka’s Supreme Court reiterated the position held by the citizens’ movement, ruling that the Rajapaksa brothers — Mr. Gotabaya, Mahinda Rajapaksa, Basil Rajapaksa — along with top officials in their government, “demonstrably contributed” to the 2022 economic crisis and “violated public trust”. However, taking no responsibility for the country’s financial collapse, Mr. Gotabaya squarely blamed “conspiratorial forces” for his removal from office. “What this book explains is the firsthand experience of an internationally sponsored regime change operation,” he said in the statement.

In an excerpt from Mr. Gotabaya’s self-published book, featured in local portal Newswire, the widely discredited leader attempts to reconstruct the last moments of his Presidency as he saw them, before he fled the island and took refuge in the Maldives first, and Singapore later. “The plan was to fly to Singapore in a private plane, but the Indian authorities had not allowed this private plane to fly to Male. So, I gave instructions that tickets be obtained on a commercial flight to Singapore,” Mr. Gotabaya writes.

Later, in a reference to the time he took the decision to resign while in Singapore, Mr. Gotabaya writes that he had, by then, decided Mr. Wickremesinghe would be his successor, “because I saw him as the only person capable of restoring law and order in the country.” On July 20, 2022, Ranil Wickremesinghe was elected President through an urgent parliamentary vote, in which the Rajapaksas’ party, the Sri Lanka Podujana Peramuna (SLPP or People’s Front) backed him. Mr. Gotabaya returned to Sri Lanka in September 2022, after seven weeks in Singapore. He lives in a state bungalow in Colombo with special security accorded to him by the Wickremesinghe administration.

Meanwhile, Sri Lankan newspaper Daily Mirror reported that Mr. Basil, the SLPP’s strategist, is scheduled to meet with President Wickremesinghe and former President Mr. Mahinda Thursday evening to discuss a possible alliance for the presidential polls and general elections scheduled later this year.

Sri Lankan President Ranil Wickremesinghe. File
| Photo Credit: AP

Sri Lanka hopes to avoid repaying debt till December 2027 after the completion of the ongoing restructuring process and repay them in the period running up to 2042, President Ranil Wickremesinghe said on March 5, as he defended his unpopular reform plans to revive the bankrupt economy.

Sri Lanka is currently stuck with debt restructuring with negotiations taking a long to reach an agreement. “By 2022, Sri Lanka had to meet external debt repayments worth six billion per year. It is 9.5% of the GDP and an amount hard to sustain,” he said.

“We hope to reduce this to 4.5% of the GDP by debt restructuring”, Mr. Wickremesinghe, also the cash-strapped island nation’s Finance Minister, stressed.

“Currently, we are actively engaged in discussions regarding the restructuring of all loans including domestic and foreign loans. We are optimistic that these negotiations will reach a successful resolution soon. Our goal is to obtain temporary relief from debt defaults from 2023 to 2027. Subsequently, we plan to diligently work towards repaying the loans in the period from 2027 to 2042”.

He said if the country was able to maintain the economic momentum gained since 2022 after the economic crisis, the state revenue could be maintained at a higher level making it easy for the debt repayment. He said through his unpopular hard economic reforms the state revenue collection had been raised to 11% of the GDP.

“For this, we had to impose Value Added Tax (VAT) which was a very painful decision to make. It was a tough decision but to overcome this economic ailment we have to suffer temporarily”. Mr. Wickremesinghe said despite hardships the country has reached a degree of stability.

”The critics say despite stability the people don’t feel it, people have been made to suffer heavy tax burdens, electricity and fuel prices have been raised to make them unbearable for the public,” he said.

He said the current success was due to the planning jointly made with the International Monetary Fund (IMF) to bring in economic stability.

Sri Lanka in the second quarter of 2022 had declared bankruptcy announcing the island’s first ever sovereign default. Negotiations with the IMF for a bailout began almost immediately and the first tranche of the $2.9 billion facility was released in March 2023.

The IMF under its bailout facility over four years has compelled Sri Lanka to set in hard reforms to revive its bankrupt economy. Total Central Government external debt as of the end of December 2023 amounted to $37.3 billion, according to the Ministry of Finance.

According to the Central Bank of Sri Lanka, the top three bilateral creditor countries are China, 43%, Japan 23% and India 15%. Additionally, there are international sovereign bondholders who represent 85% of the commercial debt category.

In April 2022, Sri Lanka declared its first-ever sovereign default since gaining independence from Britain in 1948. The crisis led Mr. Wickremesinghe’s predecessor Gotabaya Rajapaksa out of office through a campaign of public agitation. Mr. Wickremesinghe stepped in to fill in Rajapaksa’s remaining term till 2024.

Colombo:

Bankrupt Sri Lanka’s economic recovery was “not yet assured”, the International Monetary Fund warned Wednesday, after the first review of its $2.9 billion bailout aimed at restoring the island’s finances.

The Washington-based lender of last resort said Sri Lanka had been unable to meet its revenue targets and ensure growth although it had tamed runaway inflation.

“Despite early signs of stabilisation, full economic recovery is not yet assured,” the IMF said.

Sri Lanka’s census office said inflation this month dropped to an eight-year low. Year-on-year inflation of 1.3 percent in September was healthier than August’s 4.0 percent and well below the soaring 69.8 percent when prices peaked a year ago.

Last year’s economic crash sparked dire food, fuel, and medicine shortages, as well as months of civil unrest that eventually toppled then-president Gotabaya Rajapaksa.

His successor Ranil Wickremesinghe has raised taxes and removed energy subsidies, but the IMF said state revenue was still below expectations.

An IMF delegation wrapped up their two-week mission to Sri Lanka without an announcement on releasing the second tranche of $330 million. 

Colombo had expected that funding to be signed over at the end of the latest talks. 

However, the IMF said it was still reviewing “financing assurances” from external creditors on restructuring Sri Lanka’s bilateral and private debt.

Colombo is in discussion with its private creditors to restructure Sri Lanka’s international sovereign bonds, after defaulting on its $46 billion foreign debt in April 2022.

Talks are underway with bilateral lenders and part of the domestic debt has already been restructured.

China, which accounts for 52 percent of the island’s bilateral debt, has not made its position on restructuring public but has agreed to support Colombo.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

People queue up to buy kerosene for domestic use at a supply station in Colombo on May 26, 2022.
| Photo Credit: AFP

Sri Lanka has formally announced an end to the fuel rationing scheme imposed one year ago during the height of the unprecedented economic crisis, a senior minister said on Friday, hinting at an improvement in the island nation’s economy.

Energy minister Kanchana Wijesekera said the QR-based fuel rationing system, imposed in August 2022, when Sri Lanka plunged into its worst economic crisis since 1948, would be discontinued from Friday.

Under the rationing system, registered consumers at filling stations were guaranteed a weekly quota.

Sri Lanka announced its first-ever sovereign default in April 2022 and faced its worst economic crisis in history due to a shortage of foreign exchange reserves.

The unprecedented forex shortages meant that the imports of fuel and essentials became harder, causing miles-long queues.

Also Read: India to increases grants by 50% for community development projects in Sri Lanka: Official

More than 20 people died from exhaustion at fuel queues when the rationing began.

The QR-coded rationing system came into effect in August last year.

It was priced to be an instant success, with queues disappearing with the demand dropping.

The authorities then blamed stockpiling as the reason for long queues leading to an unscrupulous black market.

Cash-strapped Sri Lanka was then solely dependent on Indian supplies of fuel through an Indian credit line. The Indian credit lines for fuel and essential imports provided relief to the public protesting against the government for its mishandling of the nation’s economy.

The forex crisis hampered the state oil entity Ceylon Petroleum Corporation’s (CPC) ability to pay for oil imports.

The Lankan subsidiary of the Indian Oil Corporation (IOC) was running continuous supplies as the pumps of the state fuel entity ran dry.

Since then, the Sri Lankan government’s urgent reform measures in the power and energy sector saw the third player, Chinese Sinopec Oil, enter the retail market.

Sinopec coincidentally started its retail operations this week.

In March, the International Monetary Fund extended a nearly USD 3 billion bailout facility to debt-ridden Sri Lanka to help stabilise the country’s economy after it was jolted by the devastating economic crisis last year.