Equity brokerage says Chinese debt trap claims not based on objective evidence

• Points out even with additional US $ 2bn loans from China, SL’s exposure to China would stay below 20% of country’s total liabilities 

China hawks, who have been constantly calling that Sri Lanka could tilt disproportionately towards China, appeared to have made that claim based more on innuendos rather than objective evidence, the research unit of a Colombo-based equity brokerage said.

According to the data analysed by Nation Lanka Equities Private Limited (NLE), even with a couple of more billions of dollars worth of fresh loans from China, Sri Lanka’s exposure to China would stay below 20 percent of total foreign liabilities. 

“Even with additional US $ 2.0 billion funding from China, Chinese borrowings are less than 20 percent of total foreign debt, enabling enough room to manage the debt composition,” said the NLE research team.

The critics and others who have been advocating to avoid Chinese commercial loans for infrastructure development in Sri Lanka cited cases in elsewhere in South Asia, Africa and Latin America, where China has engaged in debt-trap diplomacy, a development alleged to have been carried out by China to saddle emerging economies with an unsustainable level of debt to gain leverage. 

NLE is expecting Sri Lanka to receive US $ 700 million from the China Development Bank during the first quarter and a fresh swap line with People’s Bank of China, China’s central bank, somewhere in 2021. 

“A fresh US $ 1.5 billion swap arrangement, a strong possibility early 2021,” said Danushka Samarasinghe and Anjula Nawarathna, the authors of the report.

“We have reason to believe that a swap arrangement with China is most likely and will relieve pressure on the annual US $ 4.0 billion (2021-2025) foreign debt repayment obligations, while debt to China still remains less than 20 percent of total external borrowings,” they added. 

Nation Lanka earlier expressed confidence of Sri Lanka’s ability to honour all its foreign liabilities in 2021, which could trigger a sovereign rating upgrade towards the latter part of this year. 

“Meanwhile, we expect a further US $ 300 million swap facility with India and c. US $ 325 million from multilateral agencies for development initiatives, which is part of the planned country quota,” they said. 

“Also, the fresh initiative of SDA’s (Special Deposit Accounts) has raked in US $ 270 million YTD 2020 and we believe the savings could augment to US $ 400 million, by end-2Q2021,” they added.