Trouble in the Neighbourhood: Iran, Pakistan, and China’s Complicated Ties
On January 16 2024, Iran launched a missile operation against the Jaish Ul-Adl militant group in Pakistan’s Balochistan, prompting Pakistan to recall its ambassador and conduct military strikes in Iran’s Sistan-Baluchestan.
China urged both nations to exercise restraint and offered to mediate the conflict to prevent escalation. Stability in Balochistan is crucial for China, as it hosts the vital Gwadar Port, a key part of the China-Pakistan Economic Corridor (CPEC) and essential for China’s Belt and Road Initiative.
Despite initial tensions, Iran and Pakistan committed to enhancing bilateral ties and security cooperation, with plans for trilateral talks with China on counterterrorism and regional security.
India’s 2024 Elections: Historical Footprints and Implications on Foreign Policy
India has conducted a complex electoral process across its vast and diverse landscape.
The country's foreign policy has evolved from the Nehruvian principles of peaceful coexistence and non-alignment to a more assertive stance under the Bharatiya Janata Party post-2014, emphasising national interests and strong defence.
This report explores how India's foreign policy has been shaped by domestic priorities, historical influences, and contemporary global dynamics, reflecting the ideological imprints of its political parties.
Overlooked Risk 2024: Pakistan’s State Fragility
Pakistan’s state of fragility is owed to its dismal economic crisis, further amplified by factors like domestic political unrest from the previous year, the devastating flood, and the Russian invasion of Ukraine. Pakistan saw this turmoil continue throughout 2023 and has now taken the form of a permacrisis i.e., a persistent or extended period of instability.
Executive Summary:
Economic troubles for Pakistan have built up since 2022 due to administrative mismanagement. Despite temporary relief from traditional backers, risks of debt default remain high.
The immediate consequences of a debt default would be severe financial instability followed by civil and political unrest.
The economic challenges are further compounded by multi-dimensional risks, climate vulnerabilities, political instability, and recent clashes with Iran.
An unfavourable and deteriorating living environment in Pakistan is likely to create a refugee crisis which will have political ramifications throughout South Asia.
The reason for the fragile state of Pakistan is the deep rooted structural inadequacies which future governments will be required to identify and reform these issues.
The upcoming elections are also being termed ‘less likely to to be fair’, and risk of political instability remains high.
The Situation at Hand:
Pakistan’s state of fragility is owed to its dismal economic crisis, further amplified by factors like domestic political unrest from the previous year, the devastating flood, and the Russian invasion of Ukraine. Pakistan saw this turmoil continue throughout 2023 and has now taken the form of a permacrisis i.e., a persistent or extended period of instability. Moreover, while the economic crisis can be directly attributed to the mismanagement by the government, there are also overlooked metrics within the society that pose significant risks to the state owing to deep structural inadequacies within the government.
For Pakistan, problems visibly started when the International Monetary Fund (IMF) stopped the bailout package in 2020 with the situation getting worse due to the floods in June 2022 and the political instability under former Prime Minister Imran Khan. Its economic problems are owed to several factors within the country. High dependency on imports, political instability, corruption, and poor governance have lowered investor confidence. Moreover, donor fatigue from countries that were willing to financially assist Pakistan has also undermined its fiscal position and the currency devaluation of Pakistan’s Rupee due to the inability to repay the foreign debt puts the state in an even more dire financial situation. Furthermore, the destruction of crops and infrastructure caused by the June 2022 floods exacerbated issues in the already struggling economy.
However, a development in the favour of Pakistan occurred with the announcement of a USD 3 billion Stand By Agreement alongside some assistance from its traditional partners like Saudi Arabia and the United Arab Emirates (UAE). From the USD 3 billion, USD 1.2 billion was subjected to immediate disbursement to avoid a sovereign default and support its balance of payments bringing some temporary relief. However, with the amount of foreign debt and domestic challenges in addition to the 2024 elections, financial risks remain high.
Adding to this permacrisis is the intensified conflict on the Iran-Pakistan border. The ongoing hostilities started with Iran ordering missile strikes on Jaish al-Adl, a Sunni militant outfit in the Balochistan province which operates from either side of the border and has on prior occasions claimed responsibility of carrying out targeted attacks against Iran. Although Iran stated that it had solely targeted the Iranian terrorists on Pakistan’s soil, the strike caused two casualties and multiple other injuries. In retaliation, Pakistan carried out missile attacks inside Iran targeting hideouts used by the Balochistan Liberation Army (BLA) and the Balochistan Liberation Front (BLF) under Operation Marg Bar Sarmachar (loose translation: death to guerilla fighters). This escalation is mounted on top of a series of small scale conflicts that both Iran and Pakistan have navigated due to the militant activities at the border area over the years, however, if these actions of taking out targets in neighbour’s soil is normalised, it will only contribute to regional instability.
Multi-Dimensional Risks and Challenges:
The blame for the crisis is largely attributed to the mismanagement under the Imran Khan government. These include delays in approaching the IMF for the bailout package, incompatible welfare schemes, not raising interest rates during COVID-19, and reluctance to raise fuel prices and roll out large fuel subsidies amidst the price hikes due to the Russia-Ukraine War. A major condition for a USD 6 billion fund by the IMF was independence for the central bank, the State Bank of Pakistan, for autonomy in decisions regarding monetary policies, price stability, and fixes a tenure for the governor.
Indian author Tilak Devasher, in his book “Pakistan: Courting the Abyss” undertakes a WEEP Analysis (Water, Education, Economy, and Population) arguing that these metrics both individually and collectively are crucial in determining a state’s security and longevity. He further states that these degraded metrics take a long time to show their effects, and since they have been made worse by successive governments in Pakistan, rectifying them would take even longer.
The water crisis can be attributed not to mere scarcity, but rather to unequal distribution, monopolies over the resources, continuing policy practices in the agricultural sector, and external financial lending that have maintained this problem making the country prone to conflict. In terms of education, even though Pakistan has been able to showcase at least some progress in student enrolments, it still struggles with Learning Poverty i.e., the inability to read and understand simple texts by students of minimum age 10. The economic worsening is largely attributed to short-sighted policy actions, over-reliance on external borrowing and extensive spending on economically unviable projects. Furthermore, Pakistan’s population has touched around 240 million marking a 10% increase since the last census only six years prior. Its negligence in family planning is reflected in the UN Human Development Index with low literacy and high poverty rates looming large over a population, the majority of whom are under age 25.
Another crucial factor for Pakistan’s fragility is its climate vulnerability. The Global Climate Risk Index, 2021 put the country in the 8th position in terms of long-term climate risk. Heatwaves and floods have showcased lasting socio-economic consequences over the years with the vulnerability factor being perceived as a national level non-traditional security issue. The International Panel on Climate Change (IPCC) projected severe and frequent extreme weather patterns as it struggled with major floods nearly every other year between 2010-2022 where the 2022 floods caused disruptions to income and livelihood, increasing already heightened internal migration levels.
Another prominent risk haunting Pakistan is the insurgency in the Balochistan Province and frayed relations with the Afghan Taliban. In its efforts to counter the Baloch rebels, the “kill and dump '' policy of the Pakistani government has fuelled aggression toward the establishment and is likely to take the form of violent clashes with potential spillover implications for other states in the region like India, Afghanistan and China. Moreover, the geographical location of Balochistan and presence of natural resources makes it attractive for development projects especially by China. Factoring in the strategic significance of Balochistan, the China-Pakistan Economic Corridor (CPEC) under the Belt and Road Initiative (BRI) aims to build major infrastructure projects from Xinjiang region in China to the Gwadar Port in Balochistan. While both Pakistan and China remain heavily invested in CPEC with dedicated efforts towards its protection, the Baloch rebels remain averse to the Chinese presence seeing CPEC as a form of colonial exploitation. Here, it should be noted that Pakistan is heavily dependent on Chinese financial backing and therefore would want CPEC to be successful, while China remains aware of potential risks from the Baloch rebels towards its economic security in the region.
On the other hand, Pakistan’s blame on the Taliban for facilitating the Tehreek-e-Taliban Pakistan (TTP) insurgency has resulted in a somewhat hostile tone between the two countries. Conversely, the Afghan Taliban has shifted focus and raised concerns over the expulsion of Afghan refugees from Pakistan which is part of Pakistan’s pressure tactics over the Taliban until they review their support for the TTP. Going forward if these hostilities are continued it is likely to negatively affect the Af-Pak (Afghanistan-Pakistan) region’s stability with mounting security concerns.
The risk of political violence and civil unrest is further exacerbated by the 2024 general elections on 08 February. On one hand, Pakistan Muslim League (PML) officially started campaigning with Maryam Nawaz, daughter of former PM Nawaz Sharif conducting a rally in Punjab, on the other hand, Imran Khan remains imprisoned with his candidacy rejected by the Election Commission alongside most of his party members Pakistan Tehreek-e-Insaf (TPI). The Election Commission remains committed towards ensuring a fair election. Citing security threats, it prioritised security of voters and candidates, called for strict adherence to the protocols and also rejected a Senate resolution to postpone the elections given all essential preparations are already completed. Moreover, Pakistan’s caretaker PM Anwaar-ul Haq Kakar established a seven-member committee to ensure smooth conduct of elections amidst allegations of pre-poll rigging. Imran Khan’s party, despite allegations of a coordinated effort to prevent them from contesting with Gohar Khan as party leader, has started campaigning alongside other parties.
In light of this election atmosphere, the government remains wary of security threats as election campaigns have previously faced violent conflict, bombings, and gun violence. Here, it must be noted that Imran Khan on previous occasions has been able to incite violence against the establishment through civil unrest, and might use his populist persona to incite violence claiming fraud in the election. Analysts are of the view that it is unlikely that these elections will be fair, that they may be delayed, and that an election will be done only after the establishment has ensured Nawaz Sharif’s victory upon completely sidelining Imran Khan. Hence, the possibility of political instability in Pakistan remains very high.
Potential Impact:
In case Pakistan faces a debt default, that would result in a capital flight due to low investor confidence, increased cost of external borrowing, and disrupted supply chains eventually leading to reduced imports and foreign exchange reserves causing a rise in inflation. These financial implications would be followed by civil unrest and possibly public violence due to an already politically sensitive environment. Furthermore, in a scenario where Pakistan loses its traditional financial backers, China is seen as a potential lender of last resort.
Few factors need to be taken into account while assessing or predicting the future trajectory of Pakistan in relation to China. While the scale and strategic significance of CPEC is well recognised, the CPEC investments are largely unviable with virtually no signs of any economic upliftment in Pakistan. Furthermore, Pakistan’s external debt has reached USD 100 billion, one-third of which is owed to China and it would be difficult for a debt-ridden Pakistan to pay given the long-term development dividends. Finally, CPEC’s momentum has been negatively affected after Imran Khan’s claims that CPEC is not aligned with Pakistan’s national interests and the Chinese nationals present in Pakistan for the development projects were regularly facing terror attacks. In this light, two possibilities exist. Either Pakistan will have to cede certain areas within the country like ports or military bases in exchange for financial backing such as in Sri Lanka, or China will no longer support Pakistan in its endless cycle of lending and failing to repay loans. Either way Pakistan faces a significant risk of state failure.
Moreover, in case future administrations are unable to ensure necessities to the population like electricity, water, food, education, and employment, public unrest becomes far more plausible as socio-political inequalities in a politically polarised society are a hotbed for violent clashes and civil unrest. While a full-state failure of Pakistan could be far-fetched, an assessment based on current factors indicates ramifications throughout South Asia. A fractured Pakistan based on unfavourable metrics of education, population, and climate could be the reason for a potential refugee crisis that would lead to an increased threat perception among other South Asian countries, particularly to its immediate neighbour India.
Recommendations:
Pakistan’s state fragility is the result of its multi-dimensional risks, and the failure of consecutive governments to address these challenges has consolidated them deep into Pakistan’s society. However, with the election in 2024, the future administration will have to undertake a series of reforms to establish a reliable and stable government.
The future administration will have to prioritise a stable functioning government devoid of any military interference, unlike the previous governments. Going forward, external borrowing could be relied upon for a limited time for instant relief, the government will have to introduce structural reforms to revamp the economic policies within the country with a focus on domestic manufacturing and increasing exports. Finally, in the longer run, the government will have to recognize and improve crucial sectors particularly the WEEP metrics to reduce the fragility of the state.
The Maldives’ election and its implications for Sino-Indian rivalry
On September 30, Maldives opposition candidate Mohamed Muizzu, who endorses stronger ties with China, won the presidential runoff with more than 53 per cent of the vote. The coalition backing Muizzu, the People’s National Congress (PNC), has a record of being close to China, engendered under outgoing President Ibrahim Mohamed Solih’s predecessor Abdulla Yameen, and has launched an "India out" campaign, promising to remove a small Indian military presence of surveillance aircraft and some 75 personnel. Around 282,000 people were eligible to vote in the election and turnout was recorded at nearly 80 per cent. Muizzu had only three weeks to campaign and, according to analysts, lacked the leverage of a sitting president, while the turnout and the decisive results indicate that Muizzu's vehement opposition to the deployment of the Indian military in the Maldives played an influential role in the election outcome.
The election effectively became a referendum on which regional power, China or India, would sustain its influence over the Maldives. This is largely owing to the fact that Muizzu campaigned on the promise to end India's presence in the Maldives and balance trade relations with New Delhi, which he claimed were severely skewed in India's favour. While India has historically maintained cultural, financial, and security links with the Maldives, China has recently invested in infrastructure projects through which it seeks to strengthen ties and pursue its Belt and Road vision of transportation and energy networks.
According to former President Solih, India is the "first responder in times of crisis, and among the loudest supporters in times of good fortune." As per Muizzu's party, PNC, India's overwhelming influence poses a threat to sovereignty, and India is attempting to install a permanent armed presence in the archipelago. In a more global sense, due to a combination of geoeconomic and geopolitical factors, the Maldives’ strategic location in the centre of the Indian Ocean Region has rendered it an essential component in the policies of the main global and regional powers.
China & India’s current strategic outlook in the Indian Ocean
The Indian Ocean is a critical geopolitical region. It is home to several important chokepoints, such as the Strait of Malacca and the Bab el-Mandeb, which are essential for global trade and energy flows. China and India are both seeking to expand their influence in the region in order to protect their strategic interests.
Under President Xi Jinping, China has expanded upon two new principal rationales for bolstering its regional presence: firstly, to forestall a competitor state from acquiring control of the Malacca Straits, through which a substantial portion of China's trade and energy supplies move; and secondly, to accelerate President Xi's BRI and the supplemental Maritime Silk Road (MSR), linking Eurasia and Africa, via a host of comprehensive infrastructure and transportation projects. Within the Indian strategic outlook, China's growing regional footprint is deemed an infringement on its historically established area of influence. Approximately 90 per cent of Indian trade volume and oil imports pass through the area, and it has previously served as an entrance point for terrorist infiltrators, in particular during the 2008 Mumbai attacks. Moreover, viewed under the context of increased Chinese maritime involvement in the region, such as the heavy Chinese presence at Pakistan's Gwadar port, further speaks to the alarm within India's strategic community due to Beijing's perceived dual military-commercial use of such bases. As part of this strategic approach, China has similarly financed and constructed commercial port facilities in various South Asian countries. These include Chittagong in Bangladesh, Hambantota in Sri Lanka, and Kyaukpyu in Myanmar.
Respective policy approaches vis-a-vis Malé
In its engagement with the Indian Ocean, China takes an "economic force" approach, strengthening ties with countries such as Pakistan. At the same time, India is adopting a "Neighbourhood First" policy in order to claim its position as the dominant regional power .“A core component of India's foreign policy focuses on peaceful relations and collaborative synergetic co-development with its South Asian neighbours of the Indian subcontinent encompassing a diverse range of topics, such as economic, technology, research, education, connectivity.” Both nation’s policies have a prominent geopolitical tone, with a focus on gaining control of key regions with economic and security importance.
When China began engaging in dialogue with the Maldives in the 1990s, India became increasingly concerned about the expanding ties between Beijing and the island state. Despite the fact that China and the Maldives established diplomatic ties in 1972, the Chinese government did not open an embassy in Malé until 2011. Notwithstanding the lack of a Chinese diplomatic office in Malé, high-level meetings between the two countries continued. In May 2001, then-Chinese Premier Zhu Rongji became the first Chinese head of state to visit the Maldives.
Since 2013, under Yameen’s presidency, China expanded its influence by establishing linkages within the Belt and Road Initiative (BRI), providing loans, and building infrastructure, while India maintained its traditional sphere of influence with its "neighbourhood first" strategy. By 2018, Beijing had completed major projects in the country, including a new runway at the main international airport and the $200 million China-Maldives Friendship Bridge – connecting Malé to the airport island Hulhule – and the National Museum and foreign ministry buildings. The timing of the airport’s construction itself is emblematic of how former President Yameen's government cultivated deeper ties with China to the detriment of India's previously uncontested position in the Maldives. China has completed the airport project in the Maldives following the cancellation of a $511 million infrastructure deal with India by President Yameen‟ 's government.
Meanwhile, under Solih, India extended similar economic concessions in a likely bid to delineate the expanded Chinese influence under the Yameen presidency. For instance, the EXIM Bank of India signed a credit agreement for $400 million for the Greater Malé Connectivity Project in October 2020. This project is deemed to be the second most important connectivity project in the Maldives, after the China-Maldives Friendship Bridge. Pertinently, at the outset of Solih’s presidency, India also gave the Maldives $1.4 billion in the form of budgetary support, currency swap agreements and concessional lines of credit as Male found itself grappling with debt from a Chinese building spree. The developments in relations with the Maldives have even led some Indian politicians, including External Affairs Minister S Jaishankar, to view it as a model for developing relations with its neighbours as part of the “Neighborhood First'' policy. Overall, India's policy in the Indian Ocean might be described as defensive realism, as a reaction to the threat of Chinese dominance. India, in particular, is safeguarding its economy and energy reliance by reinforcing its visible presence in the Indian Ocean.
Conclusion
As demonstrated above, the re-election of a pro-China leader in the Maldives is not unprecedented, highlighting that domestic trends and anti-incumbency sentiments are also likely factors in the election outcome. That said, the political divide along the lines of China and India speaks to the Indian Ocean region as being at a crossroads of the developing strategic competition between nations, particularly the growing regional rivalry between China and India. Besides the international narratives of the elections, which have increasingly emphasised the Sino-Indian competition as the most pertinent, it is also essential to consider the broader multilateral context. Given its geostrategic location, India tends to concentrate on the regional aspect, whereas China contends not only with India equally as much, if not more, with its wider global rivalry with the US. Furthermore, rising competition from China serves as further impetus for India to strengthen ties with the US and other Indo-Pacific partners such as Australia and Japan. Overall, the outcome of the Maldives election is a reminder of the growing competition between India and China in the Indian Ocean region, which is likely to intensify in the years to come given the wider multilateral contest playing out in the Indo-Pacific. However, this competition tends to serve as a balance between the two countries, motivating them to develop regional power rather than allowing a single dominant state to become a hegemon.
Sri Lanka’s delicate balancing in the Indian Ocean Region
Executive Summary:
Sri Lanka’s location in the Indian Ocean allows it a strategic significance amidst the current geopolitical climate in the region. However, Sri Lanka maintains a non-aligned posture in the region.
China’s Blue Dragon strategy includes gaining control over Sri Lanka which has pushed rival countries to increasingly engage with the island nation.
The India-China rivalry has a huge influence over Sri Lankan foreign policy. While it considers India’s concerns, it does not totally align itself with either of the two countries.
Economic recovery is currently a primary objective for Sri Lanka and with bilateral negotiations, China has taken a leading position in its debt restructuring process.
Sri Lanka under the current administration has allowed space to countries who have strategic interests in Sri Lanka in exchange for financial assistance. Hence, it is able to maintain a non-aligned posture while simultaneously working toward economic recovery.
Sri Lanka’s location in the Indian Ocean has always been crucial to the economic and political aspects of its foreign policy. Given its location along the East-West sea lanes, Sri Lanka has long been a stopover for commercial, military and civilian vessels. Moreover, since the end of the civil war and the Indian Ocean taking primacy in contemporary geopolitics, it has emphasized on revamping its Indian Ocean identity, seeking to harness the opportunities associated with the Indian Ocean.
Sri Lanka’s position in the region
In September 2023, the Sri Lankan President’s address to the United Nations General Assembly (UNGA) focused on issues of climate financing and international cooperation particularly for smaller nations that are prone to climate and economic risks highlighting the importance of multilateral forums. He also acknowledged the concept of Indo-Pacific in light of China’s rise influencing the regional geopolitical dynamics. Sri Lankan parliamentarian Eran Wickramaratne had also stated that Sri Lanka’s economy is linked with its foreign policy, adding that being a small island nation, international events and decision-making play a crucial role in driving policies at the domestic level. Furthermore, he stressed on Sri Lanka’s foreign policy components like peaceful resolution of conflicts, rejecting the use of force, and adhering to sovereignty and human rights.
Being aware of the regional geopolitical dynamics and the risks it poses to Sri Lankan autonomy, the government has been wary of not being caught in the middle of great power competition in the region and has therefore maintained the rhetoric for international cooperation and non-alignment particularly in the context of the Indo-Pacific.
Geopolitical balancing in the ocean
China’s Blue Dragon strategy encompasses gaining control over three frontiers, namely, Taiwan and Senkaku islands, artificial islands in the South China Sea, and Sri Lanka in the Indian Ocean. Sri Lanka is often referred to as the crown jewel of the Belt and Road Initiative (BRI) which connects the Colombo Port City (CPC), Hambantota Port, and other infrastructure projects. Although Sri Lanka maintained the position that Chinese investments in the Hambantota Port were purely economic, it led to concerns that Sri Lanka could potentially become China’s unsinkable aircraft carrier if these ports were to be used for military purposes along with civilian activities. The term “unsinkable aircraft carrier” was used by General Douglas MacArthur for Taiwan, however, it is used in the context of a potential Chinese military presence in Sri Lanka as well.
Concerns regarding China’s increased influence on Sri Lanka have pushed other countries to strengthen their ties with the island nation through re-engaging at various levels. On 16 October, US Ambassador to Sri Lanka Julie Chung in the conference “Ocean Security: South Asia and the Indian Ocean” highlighted Sri Lanka’s role in the Indian Ocean’s blue economy emphasizing that it recognized “Sri Lanka’s right to assert its own aspirations and objectives”. Earlier on 10 October, during her three-day visit to Sri Lanka, Anne-Marie Trevelyan, UK’s Minister for the Indo-Pacific emphasized working through the IORA toward climate mitigation, collaborative programs aligned with the Glasgow Pact, pro-environment initiatives, human rights, and bilateral commercial engagements. French President Emmanuel Macron’s visit to the island nation on 28 July 2023 was marked by France’s recognition of Sri Lanka as a crucial entity in the Indo-Pacific region and its establishing a role for itself in the geopolitics of the region.
India-China rivalry:
The increasing involvement of China in development projects in Sri Lanka has raised concerns for India as well. With an unresolved border dispute in the north, India’s concern stems from a possible naval confrontation with China in the south.
The India-China rivalry has immensely influenced Sri Lanka’s foreign policy. Sri Lanka is crucially located in terms of maritime trade as well as naval presence and has become a site of contention with both India and China trying to influence the island nation for its own advantage. Chinese investments and infrastructure development in Sri Lanka under the BRI banner is perceived as encirclement of India under the “String of Pearls’’ policy. India on the other hand, seeks to control the Trincomalee Port as a counterbalance to China's control over the Hambantota Port. Given its geographical proximity, India sees Chinese presence over Sri Lanka as a potential military threat and has consistently raised concerns over several Chinese activities.
Although the Sri Lankan government has maintained that the island nation will not be allowed to be used as a military base and will not pose any threats to India, the latter has been suspicious of Chinese presence, particularly regarding the research vessels that regularly dock at Sri Lankan ports. Earlier in September this year, a Chinese research vessel called Shi Yan 6 was given clearance for docking at Colombo by the Sri Lankan Ministry of Defence. Scheduled for 25 October, the docking was deferred by the Sri Lankan government due to the IORA meeting on 11 October and had reportedly requested China to exclude research activities in the northern territorial waters of Sri Lanka due to Indian security concerns. Sri Lanka found itself in a similar situation in the previous year when research vessel Yuan Wang 5 was cleared for docking at the Hambantota port.
The reason for security concerns around these research vessels is due to their dual purposes i.e., apart from scientific studies they can also undertake surveys allowing the Chinese strategic edge by traversing the Eastern Indian Ocean. Concerns regarding Chinese research ships are also shared by the USA and Japan. Initially, Sri Lanka initially considered India’s objection over the vessel, however, the docking of the ship was reportedly allowed under the condition that its Automatic Identification System (AIS) should be kept switched on within the EEZ. While Sri Lanka has been vocal about considering the importance of India’s security concerns, the mixed signals from Sri Lanka suggest that it plays a balancing act when it comes to the India-China rivalry.
Economic Recovery
For Sri Lanka, economic recovery is a primary objective ahead and other countries including bilateral creditors have been proactively participating in its debt restructuring process. India announced financial support to Sri Lanka in January 2023, for Sri Lanka’s debt restructuring followed by China announcing the same in March 2023. Recognising the interests of other powers in the regional contention, Sri Lanka allowed engagement with both India and China. Furthermore, a common platform for the Sri Lankan debt restructuring was launched together by India, Japan, and France. An invitation to join the effort was sent to all bilateral creditors including China. While China did not join the creditor’s platform officially, it participated as an observer. However, working bilaterally, tentative agreements were concluded between the Exim Bank of China and Sri Lanka allowing China to take a leading role in the debt restructuring process.
China’s choice for bilateral negotiations instead of a multilateral process for the Sri Lankan debt restructuring raised concerns of possible secret dealings. Given its economic vulnerability, Sri Lanka faces a genuine threat of falling into either of the spheres of influence ultimately compromising its sovereignty and autonomy for itself in the region.
The Way Forward
President Ranil Wickremesinghe during the 50th anniversary of the Bandaranaike Memorial International Conference outlined three principles as key components of its foreign policy while outlining the geopolitical landscape of the Indo-Pacific. These included adhering to the Bandung principles and the Panchshila of the Non-Aligned Movement (NAM), supporting the ASEAN outlook, and adopting a multilateral approach in the region, and promoting the Indian Ocean Peace Zone. He had particularly stated that Sri Lanka seeks for development of Asia without “getting caught in the middle.” While the Sri Lankan government has been vocal about its non-alignment and establishing an independent role in the region, it is aware that its domestic politics and international decision-making remain interlinked.
The current administration under Ranil Wickremesinghe formed after Sri Lanka’s credit default has recognized Indian, Chinese, and American strategic interests favourable to his administration. Amidst economic vulnerability, his administration has extended strategic ties to these countries in return for economic assistance. Furthermore, Sri Lanka also invited Japan to participate in its infrastructure projects, allowing Japan to form a deterrent posture against China in the Indo-Pacific.
The economic crisis poses a significant risk for Sri Lanka that may compromise its autonomy in the regional dynamics especially when it desires to be non-aligned. However, the current government has allowed space to countries that hold strategic interests in the region in return for financial assistance. In this scenario, it is possible that Sri Lanka will be able to maintain its non-alignment position by leveraging the ongoing regional contention and balance the power dynamics in the Indo-Pacific simultaneously maintaining its autonomy in decision-making.