China Sri Lanka Photo:VCG

Laborers work at the construction site on reclaimed land as part of the Chinese-funded project for Port City in Colombo. Photo: AFP

Editor's note:
China and Sri Lanka have long maintained a close relationship of mutual support and understanding, regardless of how the international situation changes. In recent years, the two countries have seen steady development in bilateral economic and trade cooperation, especially under the Belt and Road Initiative (BRI). However, since Sri Lanka fell into an economic crisis, some Western forces have been seeking to undercut China-Sri Lanka bilateral ties with the "debt trap" and other narratives. In an exclusive interview with the Global Times (GT), Sri Lanka's Ambassador to China Palitha Kohona (Kohona) debunked such narratives and talked about China's assistances to his country during such a difficult time and future bilateral cooperation. 

GT: News coverage of Sri Lanka's economic crisis has attracted global attention. And the government previously said that the crisis would last at least two more years. How serious is the current situation in Sri Lanka? What does the country need the most at the moment? What are the main reasons for the crisis?

Kohona: Sri Lanka is confronting an unprecedented crisis at present. International media have given this crisis a wide coverage, including in China. The current situation in Sri Lanka has been precipitated largely by the COVID-19 pandemic, which has negatively impacted many other countries. 

The pandemic resulted in shrinking Sri Lanka's tourism industry substantially, which had been contributing 12-15 percent of the national income. It also resulted in the contraction of our export markets, mainly in Western countries and China. Over 60 percent of our garment production was exported to Europe and the US. The Pandemic also caused a reduction of the remittances of Sri Lankan workers abroad. These were compounded by inflation and shortages of fuel, cooking gas, food and medicines, which are sourced from abroad.  

This cocktail of negative factors resulted in widespread disenchantment, which in turn gave rise to a raucous demand for the resignation of the government, including the President. In the last two weeks, the prime minister and the government have resigned and a new prime minister and a cabinet have been appointed. We hope that the situation will return to normalcy quickly.

At the moment, the country critically needs petrol, diesel, cooking gas, food items and medicines. Speeding up the renewable energy program of the government will assist substantially to address energy shortages, and the renewable energy targets of the government.

GT: In terms of emergency financial assistance from the IMF, how much does the Sri Lankan government need to overcome current difficulties? In what areas the assistance will be used?

Kohona: Sri Lanka has approached the IMF for relief and discussions have commenced. It's difficult to say how much by way of international funding will be required by Sri Lanka. The figure of at least $5 billion has been mentioned. Immediately, Sri Lanka needs funding to cover essential imports and to meet its debt repayment commitments. China, being a key member of the IMF, will be significant factor in Sri Lanka's approach to the IMF.

GT: The China International Development Cooperation Agency vowed in April to offer emergency humanitarian assistance to Sri Lanka. What kind of assistance will the agency provide? What is your assessment of the significance of China's assistance to Sri Lanka?

Kohona: The China International Development Corporation Agency (CIDCA) has offered 500 million yuan as emergency assistance. The proposed items to be covered by this package will include diesel, fertilizer, food and medicine. All Sri Lankans are grateful for this offer. We hope that larger amounts will be forthcoming given severity and urgency of the problem. The CIDCA has become a major player in South-South Cooperation and we look forward to working with the CIDCA in addressing our crisis.

GT: Some Western media outlets said that Sri Lanka has been caught in a "debt trap" by China. What is your response to such claims?

Kohona: The new Prime Minister Ranil Wickramasinghe has expressed his gratitude to China for the offer of assistance. China has always come to Sri Lanka's aid in times of need and this is undoubtedly one of those times. China stood by us when Sri Lanka was threatened by a blood thirsty terrorist group and later when the epidemic threatened to spin out of control. Today, thanks to Chinese assistance, the pandemic is substantially under control. China also made the key contribution when we were seeking to recover economically after the terrorists were defeated. We are confronting an existential threat to the state now. We need China's helping hand. The prime minister is likely to reach out to China again.

With regard to the claims of Chinese "Debt Trap Diplomacy," one needs to distinguish between self-serving propaganda and reality. Only around 10 percent of Sri Lanka's external debt is owed to China. The rest is owed to other bilateral donors, international financial institutions and multinational agencies. In the circumstance, if there is a trap, one cannot say that it was China which set the trap. Chinese loans were obtained at concessional rates. It is to be remembered that it was Sri Lanka which approached China for funding assistance to develop its infrastructure. In any event the current crisis did not result from a commitment to pay back money owed to China.

GT: Sri Lanka is a popular place, attracting hundreds of thousands of Chinese people working and studying there. What will the Sri Lankan government do to protect their safety amid the current turmoil?

Kohona: It is true that a large number of Chinese people are living, working, and studying in Sri Lanka. There is no threat posed to them. The Chinese workers are contributing to build up Sri Lanka's infrastructure. It is also to be remembered that no foreigner has been harmed during the current unrest. It is unlikely that foreigners, including the Chinese, will come under any threat.

GT: China's investment in Sri Lanka has seen rapid growth in recent years. According to China's Ministry of Commerce, the value of newly signed engineering contracts by Chinese enterprises in Sri Lanka was $3.73 billion in 2021, a year-on-year increase of 257.2 percent. How do you view China's investment in the country? What will the Sri Lankan government do to keep Chinese assets and projects in the country safe?

Kohona: Chinese funded projects have contributed significantly to Sri Lanka's economic development. Among others, Chinese funding helped us to build the Katunayake Expressway, the Southern Expressway, Outer circular Highway, the Lak Vijaya Power Plant, etc. If not for the current financial crisis, precipitated largely by external factors, infrastructure development in Sri Lanka would have progressed further. The Hambantota Harbor, which was criticized at the beginning, is now experiencing considerable growth in cargo volumes. 

A number of Industrial projects have commenced in the Hambantota Industrial Processing Zone, including the manufacture of tyres, yachts, cement and steel. A major Chinese steel manufacturer has expressed interest in establishing a plant in Hambantota. If not for the current unrest in and around Colombo, a number of large companies had committed to begin investing in the Colombo Port City. 

None of the Chinese funded development projects have come under threat. It is acknowledged that FDI will bring much needed economic advantages, as well as foreign exchange to Sri Lanka. The country desperately needs the infusion of large quantities of foreign exchange.

GT: Some Western media outlets said that China's investment in the Colombo Port City and Hambantota Port projects has "eroded" Sri Lanka's sovereignty. What are your thoughts on this?

Kohona: It is simple propaganda used by interested parties to paint Chinese investments in the Colombo Port City and the Hambantota Port in a negative light and as having eroded Sri Lanka's sovereignty. We must separate the mischief making propaganda from reality. These projects will make a valuable contribution to Sri Lanka's economic development. They have in no way eroded Sri Lanka's sovereignty. Sri Lanka maintains complete control over the developments.

GT: Sri Lanka suspended a China-invested power plant project a month ago, and it is reported that the project has been awarded to India. What is your response to those media reports, and how will China-invested projects being carried out in Sri Lanka?

Kohona: The projects which were suspended were extremely small and limited to three tiny islands in the North. I do not believe that the companies involved would have even felt the impact of the projects Beijing awarded to someone else. It is the people of those islands who will miss access to cheap electricity. It is important to remember that Sri Lanka needs investments, particularly into larger projects and in renewable energy.

GT: On May 8, the Sri Lankan Ministry of Finance announced that the AIIB will consider providing Sri Lanka with $100 million in emergency assistance. Can you tell us more about that? How helpful do you think AIIB's assistance will be in solving Sri Lanka's current debt problem?

Kohona: The AIIB repurposed an existing loan for emergency medical supplies. The medical supplies are required urgently. The Embassy has very close relations with the AIIB and their ready willingness to assist us is appreciated very much. But we require much bigger infusions of aid and investments at the moment. We will continue to talk to the AIIB, specially for assistance in the renewable energy area. Sri Lanka has a target of converting 70 percent of its energy needs to renewable energy by 2030.  Not only is this important in our efforts to meet the challenge of climate change, it will also make tremendous economic sense, given the drain on our financial resources caused by the reliance on imported fossil fuel.

GT: In recent years, China and Sri Lanka have cooperated closely. Chinese-funded enterprises have carried out many projects in Sri Lanka, including BRI projects. Will the current situation in Sri Lanka affect the China-Sri Lanka cooperation projects? 

Kohona: It is highly unlikely that the current tensions will affect the Chinese funded projects in Sri Lanka, the investments or the personnel involvement in those projects.  The government of Sri Lanka has endorsed the BRI and looks for Chinese investments to assist us in our efforts to develop rapidly.

The BRI will result in the investment of $4-8 trillion to build a region of shared prosperity. Sri Lanka certainly hopes that it will be a part of this region of shared prosperity. The current crisis will only be temporary and, with friends like China extending a helping hand, Sri Lanka will recover sooner than later.