Situated at the heart of the Indian Ocean, Sri Lanka is grappling with the world’s two superpowers: China and the US. The keen interest of the two countries has been a source of competition between them and a source of worry for Sri Lanka, which is struggling with its own economic woes. The country is combating a serious crisis; it owes about 50% in debt to many foreign powers, including China, Japan, and the World Bank.
Amid the global COVID-19 pandemic, a delegation from China made its way to Colombo, Sri Lanka. While opposition raised objections to the delegation not following COVID SOPs, others speculated that this was sure regarding the Chinese debt trap narrative. Following talks regarding economic cooperation, the Chinese Embassy announced negotiations were in place regarding a “$500 million concessional loan.” Combined with a previous grant of $90 million from China, which was announced in Colombo’s meeting with ex- Chinese foreign minister Yang Jiechi, Sri Lanka’s total loan from Beijing would amount to around $1 billion.
In the past years, there has been a shift in the nature of loans acquired by Sri Lanka. China is generous enough to provide syndicate loans to Colombo, which is to say that these loans are not attached to a project, and if the Government of Sri Lanka deems fit, they can be used elsewhere. Sri Lanka has grappled previously with a Balance of Payment (BoP) issue and has consequently turned to the IMF for help in granting short-term loans.
However, a loan that is not project-dependent can be used to balance out payments and budget deficits. Most of these are obtained from the China Development Bank. In 2015, Sri Lanka obtained a substantial loan from China to develop major infrastructure as part of China’s Belt Road Initiative (BRI).
On the other hand, the US is deeply suspicious of the developmental projects undertaken in Sri Lanka with Chinese loans. They are suspected of having political and military underlining behind them. While such speculations have been denied by both Sri Lanka and China, it remains a source of tension between the three.
Both the US and its ally India have pushed for several trade and bilateral agreements with Sri Lanka in the hopes of acquiring it as an ally in the Indo-Pacific. There has been resistance to US offerings by the public in Sri Lanka. The 2015 UNHCR resolution, which enabled the US to make constitutional reforms in Sri Lanka, was vehemently opposed and never implemented. Furthermore, a $480 million MCC grant by Washington and other projects have not come to fruition due to political setbacks in Sri Lanka.
The US Secretary of State, Mike Pompeo, spoke about China’s recent visit to Sri Lanka and called the Chinese government a ‘predator’ while speaking to Sri Lankan President Gotabaya Rajapaksa. He recently visited Colombo to speak on security cooperation between the two. He was not shy to admit that Sri Lanka is “…a powerful strategic partner for the United States on the world stage.”
Sri Lanka continues to hold a neutral position and has stated that its foreign policy is not aligned to any single country. Sri Lanka, too realizes that it is merely a playing field for the two powers to banter on. The country is focused on managing its economic crises and acting so that the events of 2017 are not repeated when Sri Lanka failed to service a Chinese loan given to build a deep seaport and had to give up the port’s lease to a Chinese firm.
As the US announces sanctions on Chinese enterprises, BRI projects in Sri Lanka have been affected. The US has moved in to offer economic help to a country struggling through not only BoP issues but a financial crisis due to the pandemic. Political analysts in Sri Lanka believe that a non-aligned foreign policy should remain the country’s continued stance.
Sri Lanka was able to navigate the Cold War by taking a stance of neutrality and non-alignment. When a second economic Cold War is building up globally, it is attractive and convenient to adopt similar policies. However, this recent rivalry may be novel in nature, and Sri Lanka’s continued economic woes, mean that the country will be forced to choose between the two, the US or China.