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China avoids bailing out Sri Lanka, Pakistan as their debt deepens: Report


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China is displaying reluctance in assisting with loan bailouts to Sri Lanka and Pakistan, which are facing severe economic and foreign debt crises even as the Asian giant was earlier keen on providing loans for various infrastructure projects in these countries, according to a media report.

According to an analysis in The Straits Times, China’s cautious approach reflects both a refining of President Xi Jinping’s signature Belt and Road Initiative (BRI) as well as a hesitancy to be seen interfering in messy domestic political situations.

“Beijing has for the past couple of years been rethinking its external lending because their banks realized they were carrying a lot of debt with countries whose prospects of paying back were quite limited,” Raffaello Pantucci, a senior fellow at the S Rajaratnam School of International Studies at Nanyang Technological University in Singapore was quoted as saying.

“This came on top of a tightening economic situation at home which also required a lot of spending, so there was less appetite to just throw money around wantonly,” he added.

China has become the world’s largest government creditor over the past decade, with its state-owned policy banks lending more to developing countries than the International Monetary Fund or the World Bank in some recent years.

The opacity around the terms and scale of some of that lending has been criticized, especially as the pandemic exacerbates debt problems in poorer countries, the report said.

Notably, World Bank President David Malpass recently called China’s opaque lending practices a “sizeable problem” and said that the country needs to improve its lending practices in the developing world.

Sri Lanka’s top diplomat in Beijing this week said he was “very confident” that China will come through with credit support, including US$1 billion for the country to repay existing Chinese loans due in July, the report said

However, the report said, China’s role in helping to resolve ongoing crises in South Asia may be limited despite its status as a major creditor.

Earlier this month, Jin Liqun, president of the China-backed Asian Infrastructure Investment Bank, encouraged Sri Lanka to turn to the IMF for help in a meeting with Kohona.

China’s ability to assist either Sri Lanka or Pakistan with a balance-of-payments crisis is limited, particularly as Beijing’s financial assistance is almost always tied to specific projects, the report said citing Muttukrishna Sarvananthan, principal researcher at the Point Pedro Institute of Development in Sri Lanka.

“Even the IMF appears to be moving very slowly – if not abandoning – the requests of both Pakistan and Sri Lanka for their assistance,” Sarvananthan said, adding, “Which sane bilateral donor country or international financial institution would pour money into sinking ships in both Pakistan and Sri Lanka

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