China’s loan in Sri Lanka: a blessing weakened by the debt-driven economy

Abstract

Borrowing loans is considered one of the means to facilitate economy in the developing countries. However, economic recession of Sri Lanka occurred at the time of active inflow of China's loans. This led to the research puzzle: why did the china's loan fail to achieve the expected economic effect to Sri Lanka? Very few researches have evaluated the complex interaction between the China's loan and non-China's factors in the Sri Lanka's economy. Therefore, this research paper is justified which examines the relationship between China's loan and the economic decline in Sri Lanka and argues the China's loan does not necessarily lead to the debt crisis, but other factors contributed in the worsening of the economy of Sri Lanka, based on the theoretical framework of debt-driven economic model. Under this model, Sri Lanka was mired in unsustainable economic development because it persisted on borrowing foreign loans beyond China to support the growth need. The hypothesis of this model would be assessed by role of both non-China's factors and China's loan in the context of Belt and Road Initiative (BRI). It would be much conducive for the Sri Lanka's government to alleviate its economic dilemma by addressing the factors assessed in this research.