By Feng Guoquan
Sri Lanka is in a dire situation. Known as the “Pearl of the Indian Ocean,” the country is facing the worst economic crisis since independence in 1948. Western media has taken this opportunity to hype up the so-called Chinese debt trap, alleging that Sri Lanka is on the verge of economic collapse because it was unable to repay its large loans from China. They add that the Belt and Road Initiative (BRI) has brought a heavy burden to the Sri Lankan economy, and constantly pitting the Sri Lankan government and its people against China, while turning a blind eye to those who are really behind all this.
Caught fire by accumulated debt
There are many causes for Sri Lanka’s economic crisis, among which the foreign exchange crisis is the main factor. Since its independence, Sri Lanka has suffered from internal and external troubles. It has been carrying trade deficits and relying on loans for years. Due to the combined impact of a string of terrorist attacks in April 2019, the COVID-19 pandemic and the Russia-Ukraine conflict, the country’s pillar industries including tourism, overseas remittances, tea and garments have been hit hard and it has rapidly drained its reserves.
What’s worse, Sri Lanka introduced a low tax regime in late 2019, which caused the government a loss of more than $1.4 billion in revenue, further limiting its capability to purchase foreign exchange.
While foreign exchange earnings have plummeted, Sri Lanka’s import payments have continuously increased. Sri Lanka’s production materials and daily necessities are highly dependent on imports, and the armed conflict between Russia and Ukraine has triggered a surge in global commodity prices. Taking energy as an example, 60 percent of Sri Lanka’s electricity is generated from coal and oil, both of which need to be imported. The global oil price increased by six-fold from $18 a barrel in April 2020 to above $100 a barrel now.
At the beginning of 2021, the Sri Lankan government banned the import of chemical to prevent the outflow of foreign exchange, resulting in large-scale crop failures, and the government had to replenish food reserves from abroad, further exacerbating the shortage of foreign exchange.
Sri Lanka’s foreign exchange reserves have plummeted by about 70 percent in the past two years. Its reserves stand at around $1.9 billion at the end of March, while its foreign debt obligations for this year exceed $7 billion. On April 12, the Sri Lankan government officially announced the temporary suspension of foreign debt payments, defaulting on its $50.7 billion foreign debt. On May 19, the government announced that it had failed to repay a total of $78 million in debt, which marked the nation’s first sovereign debt default since it gained independence.
The U.S.-led West have been pouring oil on the flames after setting fire
Although Sri Lanka has been in debt for many years, it has previously maintained a good record of foreign debt repayment. The Russia-Ukraine conflict, which was caused by the U.S.-led Western intervention, had a very serious impact on Sri Lanka’s economy, which was already in bad shape, and leading to its default. It is the hegemony and the greed of capital of the U.S.-led West that are the root causes of the economic crisis faced by Sri Lanka and other developing countries.
The mounting sanctions imposed on Russia by the U.S.-led West have been pushing global food and energy prices to new heights, and there are also restrictions on Russian financial and aviation sectors. The food prices surged in Sri Lanka due to soaring prices of wheat and corn triggered by the Russia-Ukraine conflict.
Sri Lanka exports about $150 million of tea and other commodities to Russia annually. However, as more and more Russian banks are banned from the SWIFT network, Sri Lanka was unable to obtain foreign exchange by exporting to Russia. In January this year, Russia was Sri Lanka’s largest source of tourists, but in March, the state-run national carrier of Sri Lanka suspended its flights to Russia due to the Western sanctions.
In terms of debt structure, most of Sri Lanka’s debts are in the form of international sovereign bonds, and the Asian Development Bank and Japan are its main lenders. According to the Central Bank of Sri Lanka data, as of October 2021, Sri Lanka’s international sovereign bonds reached $11.82 billion, accounting for 34.1 percent of total external debt. In terms of bilateral loans, Japan and India ranked first and second, with $3.54 billion (10.2 percent) and $790 million (2.3 percent) respectively, higher than China.
China’s bilateral loans to Sri Lanka are not the largest. Even with financial market loans (Exim Bank of China) included, it only accounts for 10 percent, and most of the loan interest rates are much lower than the capital markets, among which over 60 percent are concessional loans, and the remaining 40 percent are interest-free loans. So Sri Lanka’s debt repayment problems have very little to do with Chinese loans.
In fact, Sri Lanka is not the only country that suffers from the economic crisis. The Federal Reserve and other major central banks have raised interest rates to quell inflation, which drives up borrowing costs and may bring debt crisis to many developing countries. Turmoil triggered by rising food and energy prices is already gripping countries like Egypt, Tunisia and Peru. Scarcities of food, energy and finance put more than 70 countries at risk of following Sri Lanka into default, says United Nations, according to a recent report by the Wall Street Journal.
The trap of so-called Chinese debt trap
In recent years, governments and media of the U.S.-led West have tied the concept of the “debt trap” to China as a weapon to tarnish China’s reputation and the Belt and Road Initiative in order to counter China’s promotion of BRI, maintain their political and economic hegemony, and prevent the developing countries from participating in the BRI.
The Hambantota Port is a most cited case by the U.S.-led West in hyping up the “Chinese debt trap.” It is falsely claimed that China used the port to drag Sri Lanka deep in debt and would transform it into a military base in the future. But the fact is that the Hambantota Port added $1.12 billion of foreign exchange reserves for Sri Lanka to repay some short-term foreign debts. What’s more, the Hambantota Port is difficult to use as a military base due to water depth limitations, and the Sri Lankan government has explicitly prohibited the use of the Hambantota Port as a foreign military base.
On the contrary, India has recently partially acquired the Trincomalee Port situated on the eastern coast of Sri Lanka, which is a large natural port from a military point of view and used to be a strategic oil terminal for the British army during World War II. Because the United States intended to build an “economic corridor” and highway from Trincomalee to Colombo through the Millennium Challenge Corporation (MCC), which is obviously for military purposes, the United States, India and other countries have played deaf and dumb.
As a close neighbor of Sri Lanka, China has been sincerely helping Sri Lanka develop its economy. Instead of causing any crisis, China has over the years provided selfless help and firm support to Sri Lanka in socio-economic development. Especially since the onset of the COVID-19 pandemic, China and Sri Lanka have supported each other and pulled through together, writing a new chapter of China-Sri Lanka friendship. Chinese Premier Li Keqiang noted that China empathizes with Sri Lanka for its difficulties and challenges, and China is ready to provide much-needed livelihood assistance for Sri Lanka within its capacity.
The Sri Lankan government has explicitly refuted the myth of “Chinese debt trap” time and time again. Recently, Ranil Wickremesinghe, Sri Lanka prime minister and leader of the United National Party, expressed his gratitude to China for assisting Sri Lanka in overcoming difficulties in all aspects and stressed that the government will continue to attach great importance to developing ties with China and push forward BRI projects in the country, accelerate the development of the Colombo Port City, Hambantota Port and other major cooperation projects, make every effort to protect the safety of Chinese institutions and personnel in Sri Lanka.
The international community, especially the developing countries, need to be wary of the trap of “Chinese debt trap” set by the U.S.-led West
，which is a systematic move orchestrated by the U.S. to obstruct the BRI. Countries should endeavor to safeguard their national security and development interests, strengthen international cooperation, including those under the BRI, increase their representation and voice in global economic governance, and promote the establishment of a more just and reasonable international economic order. For developing countries including China, underdevelopment is the biggest trap, and the political, economic, military, and cultural hegemony of the U.S.-led West is the real trap.
(Writer Feng Guoquan is a commentator on international affairs. The article was first published by The People’s Daily, in Chinese, on June 11, 2022. The article reflects the author’s views, and not necessarily those of CGTN (China Global Television Network.)
Rs. 773 bn arrears: Go after massive tax dodgers before imposing new taxes – GMOA
=AG alleges Inland Revenue withheld info citing Constitution
By Shamindra Ferdinando
The Government Medical Officers Association (GMOA) yesterday (02) asked the government to explain its continuing failure to recover as much as Rs 773 bn in taxes, penalties and interest against the backdrop of unprecedented new tax hikes to bridge the record deficit.
GMOA Secretary Dr. Haritha Aluthge told The Island that the disclosure made by the Committee on Public Accounts (COPA) on Nov 28 exposed the overall effect ofthe failure byparliament to meet its obligations pertaining to public finance.
The government should have gone flat out to recover taxes, penalties and interests owed by various entities before new revenue generation measures were proposed, Dr. Aluthge said, demanding that the government to come clean on the issue.Responding to another query, Dr. Aluthge said
that what transpired at COPA meeting chaired bySamagi Jana Balvegaya(SJB) MP Kabir Hashim on Nov 28 exposed how successive governments conveniently allowed the situation to deteriorate. Former Minister Hashim succeeded Prof. Tissa Vitharana in the wake of the re-opening of parliament followingitslast prorogation.
The COPA disclosure was nothing but an indictment on the government, Dr. Aluthge said, urging the Finance Ministry and other relevant institutions to address the issue at hand. Why the entire population should suffer due to utterly corrupt and incompetent lot neglecting their responsibilities?Dr. Aluthge asked.
Referring to the statement issued by the Director Legislative Services on Nov 29 consequent to COPA meeting on the previous day, Dr. Aluthge pointed out that the Inland Revenue Department had been summoned by the parliamentary watchdog committee to examine whether COPA recommendations given on March 24, 2021 were implemented.
The top GMOA official said that he was quite baffled that theburningissue hadn’t been given priority in spite of the financial crisis that caused an unparalleled explosion of public anger.
COPA meeting that had been chaired by MP Hashim were attended by State Ministers Mohan PriyadarshanadeSilva, Lasantha Alagiyawanna, Kader Mastan, (Dr.) Suren Raghavan and Diana Gamage as well as MPs Tissa Attanayake, Ashok Abeysinghe, Dr. Sudarshini Fernandopulle, Major Pradeep Undugoda and Weerasumana Weerasinghe.
Dr. Aluthge said that according to figures released by COPA, the total arrears as at June 30, 2022 amounted to a staggering Rs 773,957,856,618 inunpaidtaxes, penalties and interests. The GMOA official pointed outthatCOPA had acknowledged that out of that amount Rs 201,400,855,198 could be collected as there was no legal impediment whereas the recovery of the remaining Rs 572,557,001,420 was on hold temporarily due to various reasons.
Referring to COPA proceedings, Dr. Aluthge said that the Auditor General had quite clearly asserted that the total amount due to the Inland Revenue was Rs 773,957,856,618 in terms of RAMIS (Revenue Administration Management Information System) and Legacy Systems.How could a bankrupt government be so irresponsible?Dr. Aluthge asked.
The GMOA Secretary also faulted the media for not providing sufficient coverage to the issues dealt by parliamentary watchdog committees. The waste, corruption, irregularities and mismanagement that had been exposed by these watchdog committees over the years proved over and over again the parliament was responsible for the current unprecedented crisis, Dr. Aluthge said.
The shocking disclosure made by the Auditor General that the RAMIS system installed at a staggering cost of over Rs 10 bn to ensure smooth collection of revenue was yet to be fully and properly operational painted a bleak picture, Dr. Aluthge said.
Referring to COPA proceedings again, Dr. Aluthge said that the Auditor General was on record as having said that though deficiencies of RAMIS system had been brought to the notice of COPA on several occasions remedial measures were not taken.
“The parliament owed the public an explanation. The parliament cannot absolve itself of the pathetic and reckless handling of public finance that finally led to Sri Lanka tagged as a bankrupt country,” Dr. Aluthge said.
Dr. Aluthge said that the GMOA sincerely believed the parliament would at least now hear what the Auditor General told COPA of his efforts to get to the bottom of RAMIS installation.
Janakantha Silva, Director Legislative Services and Acting Director Communication in a statement that dealt with COPA meeting chaired by MP Hashim quoted the Auditor General as having said that the Inland Revenue Department declined to release the RAMIS agreement and related payments, the agreement barred the Inland Revenue from releasing the information sought by him. The Auditor General has further alleged that the Inland Revenue Department withheld information pertaining to the RAMIS agreement claiming the release of the agreement violated the Constitution.
How could the Auditor General be deprived of an agreement entered into by the Inland Revenue on behalf of the government? Dr. Aluthge asked.COPA Chairman Hashim has declared that an audit would be conducted on the RAMIS deal if the report sought from the Inland Revenue within a month in respect of the same was not satisfactory.
Dr. Aluthge said that he couldn’t believe that action hadn’t been taken in respect of 4,831 return checks worth Rs 2,488,003,615 (2.4 billion) received by Inland Revenue as at June 30. According to COPA 3,817 of these returned cheques worth Rs. 1,429,356,750 rupees were more than 3 years old. The Inland Revenue has said that the department lacked the authority to take legal action.
Pointing out that COPA Chairman has advised Inland Revenue to inform him of the action in this regard in consultation with the Attorney General , Dr. Aluthge said if the parliament bothered to inquire into what was happening in the revenue collection set up the current crisis could be easily explained.
Dr. Aluthge recalled comprehensive tax proposals submitted by Prof. W.D. Lakshman during President Mahinda Rajapaksa’s second term were never implemented. In fact, the library of the parliament didn’t have a copy of it, Dr. Aluthge alleged, urging the parliament to address the issues at hand without further delay or prepare to face the consequences.
Record number of students visited parliament on 01 Dec.
A record number of students had visited Parliament yesterday (02), Serjeant-at Arms Narendra Fernando said, adding that it was the highest since the country gained Independence in 1948.Permission had been given to over 5,000 students from 32 schools representing different areas of the country to visit the Parliament on 01 December, he said.
More than 25,000 students have visited to observe the Parliamentary debates after the Public Gallery reopened for schoolchildtrn from 19 September 2022. For over two years the gallery was closed due to COVID-19.
He also mentions that steps are being taken to provide a free glass of milk to each student who visits the Parliament from January 2023.
He added that it is a decision taken by the Committee on Parliamentary Business chaired by the Speaker and with the support of all the party leaders including the Leader of the House,Chief Government Whip and the Leader of the Opposition.
The Serjeant-at Arms said that it should be specially highlighted that the President Ranil Wickremesinghe in his capacity as the Minister of Finance, has decided to provide the necessary financial support for it.
TNA MP vows to send China packing
By Saman Indrajith
Tamil National Alliance (TNA) Batticaloa District MP Shanakiyan Rasamanickam yesterday vowed to lead ‘China Go Home’ protests if Beijing did not restructure Sri Lanka’s debt expeiditiously.Speaking in parliament yesterday, Rasamanickam said that China was a 20 trillion US dollar economy and the total Sri Lankan debt to China is 7.4 billion dollars.
“We owe three billion US dollars to China Development Bank and 4.4 billion US dollars to EXIM bank. If China, who has
nearly 20,000 billion dollar economy is truly Sri Lanka’s friend it can write off our debt. We are not even asking for that, we are asking China to expedite the debt restructuring. Offering 9 million litres of diesel or half a million kilos of rice isn’t real help,” he said.The TNA MP added that China lent Sri Lanka billions of dollars knowing well that the country’s economy was in shambles.
“China has built a 20 trillion dollar economy. They are smart. They are not stupid. They knew we were in trouble but kept on lending to ensnare Sri Lanka in a Chinese debt trap. So I ask China to do the right thing. Sri Lankans might be divided over ethnicity and religion but when the country is really in trouble, we all come together. Everyone came together under ‘Gota Go Home’ banner to get rid of Gotabaya Rajapaksa. If China doesn’t help us restructure our debt, people will come onto the road demanding ‘China Go Home’ and I will lead them,” he said.
Rasamanickam said said debt destructing is Sri lanka’s prime objective and the government’s priority should be to secure the IMF package.
“The main problem is that china is not willing to restructure. I spoke of this in Parliament before and the Chinese embassy Twitter handle has commented on this. They are tagging me on Twitter all the time. I am speaking on behalf of the people of Sri Lanka, I am not talking on behalf of some embassy. Them tagging me on Twitter and commenting on what happens inside is an attack on our sovereignty. If the Chinese embassy wants a Twitter war, I am ready,” he said.
Rs. 773 bn arrears: Go after massive tax dodgers before imposing new taxes – GMOA
Record number of students visited parliament on 01 Dec.
TNA MP vows to send China packing
‘Dates have the highest sugar content to fight Coronavirus’
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