Sri Lanka Crisis Warns Other Countries of Belt and Road

The International Monetary Fund (IMF) says Sri Lanka is in the midst of a severe and unprecedented economic crisis and has sparked huge popular protests, with its president resigning after fleeing the country.

Sri Lanka is one of the countries along the CCP’s ‘Belt and Road’, where the CCP encourages and supports expensive infrastructure projects that do not generate significant economic returns through loans. There was active political support for the ruling Rajapaksa family (former President of Sri Lanka) and its policies in exchange for the benefits of several CCP families interests. Over the years, Sri Lanka has accumulated huge debts. Last month, it became the first country in the Asia-Pacific region to default on its foreign debt in 20 years and sparked social unrest.

Sri Lanka’s crisis has also put other Belt and Road countries with high debt levels and limited policy space under pressure and risk.

1. Laos: oil prices have risen, the currency has plummeted versus the U.S. dollar, and at risk of defaulting on foreign loans for months and was downgraded to “junk” status by Moody’s.

2. Pakistan: Prices have risen since May, annual inflation reaching 21.3%, the highest level in 13 years. Foreign exchange reserves have shrunk, and foreign debt is high.

3. Maldives: public debt has ballooned and is now well above 100% of its GDP, and is also at risk of defaulting on its debt.

4. Bangladesh: Inflation reached 7.42% in May, an 8-year high.

China has been the main lender to these developing countries and can therefore control their fortunes in key ways. If the economy of the CCP were to falter, it would also create a nightmare for these Belt and Road countries.