"China’s Lending Comes Under Fire as Sri Lankan Debt Crisis Deepens" 18 January 2022

A deepening debt crisis has left Sri Lanka struggling to pay for imports and stoked political controversy over Chinese lending to the South Asian nation as part of Beijing’s global Belt and Road infrastructure program. [...]

Sri Lanka’s debt problems have escalated over the last two years, as both its key foreign-exchange earners—tourism and remittances from abroad—were hit hard by the coronavirus pandemic.

Confronted with decade-high inflation, a weak currency and rising import costs, Mr. Rajapaksa declared an economic emergency in September, appointing the military to oversee the supply of basic staples such as rice and sugar, sold at government-guaranteed prices. Since November, Moody’s, Fitch and Standard & Poor’s ratings firms have all downgraded Sri Lanka sovereign credit score further into junk territory. [...]

“The forex situation has become so critical that [Sri Lanka] has no sufficient reserves to import even the essential imports like fuel, medicines, foods, and industrial raw materials,” said W.A. Wijewardena, a former Sri Lankan central bank deputy governor.

Some top Sri Lankan economists have called for the government to suspend repayments until it restructures its debt, saying the country’s dwindling reserves are better used to secure the supply of essential goods for its citizens, who are facing rolling power outages and shortages of imported essentials such as milk powder, cooking gas and fuel. [...]