Sovereign debt and China: Are we in for a crisis?

BY Akalanka Thilakarathna

The notion of sovereignty grew with the emergence of the nation State, when such was formulated in the mid-17th Century where the idea of one country and one nation emerged. As a concept, sovereignty has been a popular slogan even for those who do not understand what it really means.

A country’s sovereignty can be divided as internal and external. When it comes to internal sovereignty, it means that a country is capable of exercising its powers and functions upon its citizens without any interference. External sovereignty refers to the ability of a country to manage its affairs in the international arena without interference from another force. Simply put, internal sovereignty is the freedom to do and external sovereignty is freedom from other sources, other than the domestic power yielder, whether an individual or an institution.

While the concept of sovereignty might not have been properly defined so as to have global acceptance, everyone agrees with the fact that it refers to the ability of a nation to manage and decide upon its own affairs. As soon as this ability is lost, a country’s statehood itself may become problematic. Then the question arises as to whether a country’s internal and external sovereignty could be effectively lost, if it is unable to maintain its economy without the aid of the others. The bigger question still would be whether Sri Lanka is losing its sovereignty as a result of its escalating debt.

According to recent estimates, the Central Bank of Sri Lanka (CBSL) in 2019 reported that the total foreign debt is 65.3% of gross domestic product (GDP). Making things worse, in 2020, the total debt of the Central Government was 101% of GDP. With this escalating debt, Sri Lanka has borrowed heavily from other countries – particularly from China. It is estimated that as of April 2021, Sri Lanka owes nearly $ 5 billion to China.

Being in debt to a particular country at a greater proportion can be seen as a major threat to both internal and external sovereignty of a country, as the indebtedness would allow such a lending country to interfere with both external and internal affairs of a country, since it would have the power of controlling the policies of a country when it lends money in large quantities. This may also result in developing frictions in the relationships with other sovereign nations, who would be sceptical in the involvement of a particular country with the handling and management of internal affairs, as with the relationship between China and Sri Lanka. This easily creates tension between the relationship between India and Sri Lanka as well as US-Lanka relations, while undermining the Lankan relationship with the European Union (EU). Even where the said nations may not always act in the best interest of Sri Lanka, it will have to suffer the consequences of unhealthy relationships with these countries.

While Sri Lanka imports a total worth $ 3.58 billion from China, it only exports a total worth a mere $ 0.252 billion. In such a situation, Sri Lanka is at a distinct disadvantage concerning international trade with China – not so much of it due to imports but due to the lack of exports. In comparison, Sri Lanka exports a total of $ 2.66 billion to the US while the imports remain at around $ 0.5 billion.

It can be seen that giving so-called financial assistance has become the new strategy of imperialisation in the modern world, a new form of capitalist arrangement. If we look at the Sri Lankan situation with what it has done with China, while the Chinese Government has provided the required credit for many of the development projects in the country, the granted money reverts back to China since many of the materials and contractors utilised to finish these projects are Chinese. If civilisation was the norm used by the Europeans in their colonisation project, China has found a modern tool in sovereign debt. The trap is a simple one whereby one invests in a country and makes sure that the benefits yielded from those investments are brought home, and then to squeeze the country out of any alternatives apart from requiring it to act according to the wishes of the nation which provides the loans. When this takes place, both internal and external sovereignty may be lost.

The 1978 Constitution of the Democratic Socialist Republic of Sri Lanka, under Article 3, clearly points out that the sovereignty shall be with the people, and that it should be exercised by the three branches of the government, according to Article 4 of the same. However, when the government is under pressure from a foreign sovereign as to what it should and should not do, this seriously hampers the sovereignty of the people, which is undermined by the fact that, while the sovereign powers are with the three branches of the government, they are dictated to and directed by another country. This is somewhat evident from the fact that even the recent vaccination process is carried out with the vaccines provided by the Chinese Government.

While it is undisputed that the relationship between China and Sri Lanka has yielded so many opportunities and developments in the infrastructure facilities, the reliance on Chinese aid for a prolonged period would seriously undermine the sovereignty of Sri Lanka, as much of its internal and external affairs – which are a part of its sovereignty – may not be enjoyed if the present pattern of borrowing is to continue.

(The writer is a probationary lecturer at the Human Resource Advancement Institute of the University of Colombo)