A view of Colombo Port. Photo: VCG

Editor's Note:

The intertwined resonance of economic hardship, political turmoil and social crisis has brought Sri Lanka's national governance to the brink of paralysis, with an uncertain start for the new government. However, the international community's concerns about the knock-on effects of the collapse of the country are accompanied by some countries' distorted incitements of ill-timed attempts at geopolitical game playing and the unfounded questioning by some media outlets of China's role. 

Responding to speculation, in an exclusive interview with the Global Times reporters Lin Xiaoyi and Li Xuanmin (GT), Palitha Kohona (Kohona), Sri Lanka's Ambassador to China, emphasized his confidence that bilateral relations between China and Sri Lanka would not be affected by a change in government.

Sri Lanka's Ambassador to China Palitha Kohona during an exclusive interview with the Global Times. Photo: Li Jieyi/GT

In contrast to the fact that Sri Lanka had not reached any initial agreements with its largest creditors such as the IMF, the ambassador noted that China's practical humanitarian assistance has been "very helpful." 

The ambassador also refuted some media outlets' assertion that India is rushing to help Sri Lanka while China has turned its back. "We have never had any doubts about China's friendship."  


GT: What is the current situation in Sri Lanka?

Kohona: There have been large scale protests against the government. Currently, Sri Lanka doesn't have sufficient cooking gas, fertilizer, fuel, diesel, medicine, and even food stocks, which poses a huge challenge to Sri Lankans' basic household cooking, transportation, medical needs, and preparation for the upcoming cultivation season. The resulting unhappiness, and resentment, and pain, caused many people in Sri Lanka to take to the streets in protest. After almost three months, their demonstrations culminated in the resignation of the prime minister, almost the entire cabinet, and now the President.

We have a very difficult situation in Sri Lanka with an interim president and a high degree of constitutional uncertainty. Under the constitution, Prime Minister Ranil Wickremesinghe has assumed the role of acting president at present. There are protests even against him. So I don't know what the outcome will be. This is very unsatisfactory. The leadership of the country is being challenged.

In the next few days or weeks, parliament is scheduled to meet. We are hoping that constitutional provisions will be followed as elections have to be held within a specified period to elect a new president.

GT: What are your expectations for the future direction of China-Sri Lanka relations after the new president takes office?

Kohona: Whoever takes over the government after an election will continue to maintain the confidence of the Chinese government as well as the goodwill of the Chinese people. There's good understanding between the leadership of the two countries. The relationship between China and Sri Lanka is based on a very solid foundation. We have developed a strategic cooperative partnership and China is our biggest trading partner and the major investor. Hopefully the new government will adhere to these fundamentals and maintain the relationship as it is now. 

GT: China has aided Sri Lanka in times of need. What is your assessment of the significance of China's assistance to Sri Lanka?

Kohona: Sri Lanka desperately needs help now. China has announced an emergency humanitarian aid package worth 500 million yuan ($74 million) to Sri Lanka. China offered to provide us with fuel, fertilizer, and food. Medicine has also already been delivered. The food continues to be delivered, including rice. It's significant that China is giving us rice at this stage because our relationship in the early 1950s was consolidated on the basis of an agreement under which China gave us rice and we provided rubber to China.

I have noticed that about 60 million Chinese people viewed the reporting on Sri Lanka in the last few weeks on social media platforms. That is almost three times the population of Sri Lanka. That shows that there is considerable interest in Sri Lanka among the Chinese, and I hope that this interest converts into tangible results. China is the most lucrative consumer market in the world, and more exports to China could contribute more to our sustainable recovery. I also hope the Chinese who are looking at the images coming out of Sri Lanka will be encouraged to drink more Sri Lankan tea, and buy Sri Lankan products, that will help us much more in the medium term than the loans that we succeed in acquiring.
 

Staff members transfer emergency humanitarian drugs assisted by China at Bandaranaike International Airport in Colombo, Sri Lanka, on June 3, 2022. Photo: Xinhua

GT: There have been media outlets claiming that India is rushing to help Sri Lanka while China has turned its back on the country. What's your comment on such allegation?

Kohona: I think it's unfair to say that India did better than China, or that India did a lot more in the immediate term. India has definitely come forward and helped, for which we deeply appreciate. But China has also been very helpful. We are in discussion with the Chinese authorities for an additional aid package.

I don't believe that there is a competitive relationship between China and India with regard to Sri Lanka. China has been a very close friend, especially in the recent past. China stood by Sri Lanka during our war with terrorism and separatism, and supported us in the international arena. We have never had any doubts about China's friendship.

GT: Some foreign media outlets have related the crisis faced by Sri Lanka to China-funded infrastructure investment, and hyped how those investments would pull more emerging economies into "debt crisis." What is your view on the alleged "debt trap?"

Kohona: China has funded some large-scale projects in Sri Lanka, like the Colombo Port City and the Hambantota harbor and industrial zone. We haven't heard many voices being raised within the country against those projects. Critics from the outside have said our debt problem has been accentuated by these Chinese-funded projects. That's just convenient propaganda. We need to carefully separate fact from simple propaganda. Some foreign media outlets hype the so-called "debt trap." It is a simple case of looking for any opportunity to be critical of China.

Many Western media outlets also called the Hambantota Port a "debt trap" project. This is a gross exaggeration. The funding received from the Chinese lessee of the port was not used to repay the China loans, but was used to repay other loans from other lenders who are not Chinese. I don't think there is much fact behind that "debt trap" allegation. Another thing to remember is that we now find a large number of ships actually using the port. There are ships that dock at Hambantota Port for bunkering purposes, and business is growing rapidly. No big project of this nature returns a profit within two or three years. Some of them take many years to return a profit. The international business community has to get used to the idea that there is a harbor here, which can be used commercially.

GT: Under the China-proposed Belt and Road Initiative (BRI), a number of Chinese companies have investments in Sri Lanka. Has the situation affected their operation? And what is your evaluation of the significance of Chinese investment in Sri Lanka?

Kohona: Currently, there has not been a single incident where overseas Chinese nationals have been affected by the demonstrations. There is no threat to Chinese projects or Chinese employees in Sri Lanka. Normal safety precautions would have been in place of course.

BRI investments will continue to be critical to the Sri Lankan economy after the situation stabilizes. To begin with, that would mean foreign exchange flowing into our country. Secondly, FDI will generate employment. The embassy is encouraging a number of Chinese renewable energy companies to establish themselves in Sri Lanka. We also had an inquiry from a very large steel company to establish a steel-making plant in Hambantota. There are other infrastructure projects which we have planned in Sri Lanka, including a light rail project.

These projects will have an immediate effect on the economy. More foreign exchange will be flowing into the country. More employment will be created. And in the process, the economy will be regenerated.

GT: The current debt crisis in Sri Lanka is the result of a combination of internal and external factors. Do you think that interest rate hikes by the US and other developed economies are also to blame for the crisis?

Kohona: Interest rate hikes do have an impact. There's no doubt about that. In addition to Sri Lanka, there are many other countries, perhaps 37 or 38 in the world, which also need substantial assistance at the moment to manage their finances. There are many other countries which are experiencing stress facing the same problems that Sri Lanka is experiencing. In some countries, we know that petrol is selling at $7.50 a gallon. But in many of these countries, they have the money to buy goods, even at high prices. Our problem is acute. We have run out of foreign exchange, so we just cannot purchase anything.

Earlier, the government of Sri Lanka avoided publicly declaring that we were heading toward bankruptcy, because we did not wish to shake the confidence of international lenders, but after Prime Minister Ranil Wickremesinghe took over, we decided that it was important to be absolutely transparent and let the world know that we were confronting a very difficult situation.

GT: In terms of emergency financial assistance from the IMF, how are the negotiations going?

Kohona: The IMF visited Sri Lanka at the end of June, and we had official-level discussions. And judging by the reports which we have received, the official level discussions were very satisfactory.

There's no initial agreement at the moment as the discussions are only at a preliminary stage. We have appointed a team of legal advisers in London, and a team of expert specialists in debt restructuring. We will have more information once there have been further follow-up meetings. The date of the next meeting has not been fixed because of the turmoil. But once the new government is installed or new authorities take over, this should happen soon.

We are also in discussions with our bilateral partners to see how the funds that have been borrowed or the repayments due can be managed in a way that will enable us to recover sooner rather than later.

GT: Do you have any concerns about terms and conditions attached to IMF's bailout plan?

Kohona: We hope those terms and conditions will not be onerous, because we are not in a position to impose further suffering on our people. I think some of the implications of debt restructuring will be difficult for us. The first recommendations to be made, from past experience, would be to tighten the belt further.

In some cases, it's difficult because the belt is already on the last notch. Sri Lanka has a state-funded healthcare system from birth to death. Some are worried that the IMF might recommend that we tighten the healthcare system. Our education system is also free from grade one to university level. This might be another area that the IMF might recommend pruning. But these may add to the unrest, which is already hampering the recovery of the country and unsettle any government which takes over in the next few weeks. We have to deal with these issues, and it's not going to be easy for Sri Lanka.

GT: What role do you expect the IMF and other international organizations like the World Bank to play in speeding up Sri Lanka's debt restructuring?

Kohona: Sri Lanka's largest creditors are the Asian Development Bank (ADB) and the World Bank, and there are also institutional investors. We owe a substantial amount to institutional investors from the West. Wall Street, for example, is probably the biggest creditor to Sri Lanka. So we hope that the World Bank will be able to come up with a package that will help us deal with our debt problem. Similarly, with the ADB. In addition, we also encourage our bilateral partners including India, Japan and China to provide more assistance. We need our friends to help us out from our immediate difficulties.

Sri Lanka owes only 10 percent of its debt to China, and not all of it is due immediately. At the moment, only $1 billion is due to China this year.