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"Chinese loans are not the primary cause of the Sri Lankan debt crisis"

When a country faces difficulties in repayments of debt in time, economists have the – situation as a debt-crisis. Macroeconomic indicators of debt repayment indicate that annual debt repayments of Sri Lanka have exceeded 77 percent of GDP. No doubt that this is a crisis situation. Now the economists are divided on the reasons for this crisis. There are two main arguments.
One argument is that the debt- crisis is due to excessive foreign loans obtained by successive governments. In this regards, Chinese loans for massive infrastructure development projects such as Financial City, Hambantota harbor, Mattala Airport and Highway projects are blamed. The second argument is on the internal inefficiencies and corruptions. Two alternative explanations of debt crisis in Sri Lanka would examine in the discussion.
Scholars have been emphasizing a mixed impact of public external debt on economic growth. As far as public external debt and economic growth is concerned, a reasonable level of borrowings would enhance the economy through productive growth and capital accumulation. In the context of developing countries, at the initial stage, countries have no financial capacity even though they do have reasonable number of investment opportunities. Thus, foreign debt can be used to fill the gap between financial availability and existing investment opportunities through acquiring technology and other resources which enhance employment opportunities and domestic productivity. However, the current context of Sri Lanka questing whether the scholarly arguments on the stated relationship are practical.


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