Debt trap diplomacy is a term used to describe the relationship between a creditor country extends loans to debitor country with the intention of gaining economic leverage and control when the debitor country struggles to repay.Â
The debt trap concept has gained prominence in recent years, particularly in the context of China's global infrastructure development initiatives such as the Belt and Road Initiative (BRI).
The Belt and Road Initiative is a key part of China's foreign policy and economic diplomacy, designed to strengthen its global influence and promote economic growth. This ambitious project spans multiple continents and involves the construction of infrastructure, such as roads, railways, ports, and energy projects, as well as the promotion of trade and investment. Thats why International cooperation is a key aspect of this strategy, as it involves multiple stakeholders, including governments, businesses, and financial institutions. This collaboration is essential for the success of the initiative, as it allows for the sharing of resources, expertise, and best practices.
One of the challenge that would be accepted by the debitor country is the debt issue, as some countries have taken on significant debt to finance their participation in the initiative. Critics argue that this could lead to unsustainable debt burdens and even potential debt traps, as countries may struggle to repay their loans.
Brahma Chellaney, an Indian strategic thinker and international relations expert, has been a vocal critic of China's debt trap diplomacy through his book Water: Asia's New Battleground since 2011. He has extensively written and spoken about the risks associated with countries falling into a debt trap due to unsustainable borrowing from China for infrastructure projects. Chellaney has highlighted how such debt can lead to a loss of strategic autonomy for the borrowing countries, as well as potential negative impacts on their sovereignty and economic stability.
The relationship between Sri Lanka and China is one of the case of China's debt trap diplomacy. Where China lent money to Sri Lanka to build a major port on their southern coast at Hambantota. However, these projects are inefficient and do not generate profits. Hambantota Port is only used at around 20% of its capacity, putting a burden on state finances. Faced difficulties in repaying the loans, Sri Lanka ultimately handed over control of the port to China on a 99-year lease in 2017.
In response to the situation, the IMF has called for a comprehensive debt restructuring plan to be implemented. This would involve both China and Sri Lanka working together to renegotiate the terms of the loans, reducing the overall debt burden and ensuring that Sri Lanka can continue to service its obligations without facing financial collapse.Â
