The South Asian island nation borrowed heavily to plug years of budget shortfalls and trade deficits, but squandered huge sums on ill-considered infrastructure projects that have further drained public finances.
It is now in the grip of its worst financial crisis since independence from Britain in 1948, with months of blackouts and acute shortages of food and fuel plaguing its 22 million people.
After weeks of largely peaceful protests demanding the government resign over its economic mismanagement, things turned violent Monday after pro-government supporters clashed with demonstrators, leaving five people dead and at least 225 wounded.
Many of the white-elephant projects that helped fuel the crisis now gather dust in Hambantota district, home of the powerful Rajapaksa clan, which used its political clout and billions in Chinese loans in a failed effort to turn the rural outpost into a major economic hub.
Prime Minister Mahinda Rajapaksa — who commissioned many of the projects — announced his resignation Monday, the same day the anti-government protests turned violent.
But his younger brother Gotabaya remains president.
The centrepiece of the infrastructure drive was a deep seaport on the world’s busiest east-west shipping lane, which was meant to spur industrial activity.
Instead, it has haemorrhaged money from the moment it began operations.
“We were very hopeful when the projects were announced, and this area did get better,” Dinuka, a long-time resident of Hambantota, told AFP.
“But now it means nothing. That port is not ours and we are struggling to live.”
The Hambantota port was unable to service the $1.4 billion in Chinese loans rung up to finance its construction, losing $300 million in six years.
In 2017, a Chinese state-owned company was handed a 99-year lease for the seaport — a deal that sparked concerns across the region that Beijing had secured a strategic toehold in the Indian Ocean.
Overlooking the port is another Chinese-backed extravagance: a $15.5 million conference centre that has been largely unused since it opened.
Nearby is the Rajapaksa Airport, built with a $200 million loan from China, which is so sparingly used that at one point it was unable to cover its electricity bill.
In the capital Colombo, there is the Chinese-funded Port City project — an artificial 665-acre island set up with the aim of becoming a financial hub rivalling Dubai.
But critics have already sounded off on the project becoming a “hidden debt trap”.
– Biggest bilateral lender – China is the government’s biggest bilateral lender and owns at least 10 percent of its $51 billion external debt.
But analysts believe the true number is substantially higher if loans to state-owned firms and Sri Lanka’s central bank are taken into account.
The borrowing contributed to Sri Lanka’s dire fiscal predicament, after years of taking loans to cover spiralling budget deficits and to finance the imported products needed to keep the island’s economy ticking over.
“Fiscal profligacy over many decades and weak governance… got us into trouble,” Murtaza Jafferjee, chairman of Sri Lanka’s Advocata Institute think tank, told AFP.
The economic woes weighed heavy after the coronavirus pandemic torpedoed vital revenue from tourism and remittances, leaving the import-dependent country unable to purchase essential goods from abroad.
– ‘China has done its best’ – Unable to service its growing debt burden, and with credit rating downgrades drying up sources of fresh loans on the international money market, Sri Lanka’s government last month announced a default on its foreign loan obligations.
It had sought to renegotiate its repayment schedule with China, but Beijing instead offered more bilateral loans to repay existing borrowings.
That proposal was scuttled by Sri Lanka’s appeal for help to the International Monetary Fund — a move that has aroused consternation as Chinese lenders will now likely need to take a haircut on their loans.
“China has done its best to help Sri Lanka not to default but sadly they went to the IMF and decided to default,” Chinese ambassador Qi Zhenhong told reporters last month.
For many Sri Lankans, the largely unused infrastructure projects have become potent symbols of the Rajapaksa clan’s mismanagement.
“We are neck-deep in loans already,” said Krishantha Kulatunga, owner of a small stationery store in Colombo.
Kulatunga’s business sits near the entrance to the Lotus Tower, a floral-shaped skyscraper bankrolled by Chinese funds.
The tower’s colourful glass facade dominates the capital’s skyline but its interior — and a planned revolving restaurant with panoramic views of the city — has never been opened to the public.
“What is the point of being proud of this tower if we are left begging for food?” asked Kulatunga.