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Sri Lankans walk by a Chinese-funded port in Colombo. Photo: Lakruwan Wanniarachchi/AFP via Getty Images

Sri Lanka's economy is struggling under the weight of massive debts owed to China, with the rupee hitting an all-time low on Monday.

The big picture: As the small South Asian country's economy spirals downward, it's freeing itself from debts by selling Chinese-funded infrastructure projects back to China, giving Beijing influence over strategic ports close to its rival India's shores.

The trap

There are two big economic problems in Sri Lanka. Shailesh Kumar, a South Asia expert at the Eurasia Group, broke it down for Axios:

  1. Huge debts, largely due to big-ticket infrastructure projects that China funded as part of its trillion-dollar Belt and Road Initiative.
  2. Falling foreign currency reserves, which it uses to buy imports. That's an indicator of poor economic health, and it's leading to a drop in the value of the Sri Lankan rupee.

Shrinking foreign currency reserves forced Sri Lanka to lease the Hambantota port — largely funded by the Chinese — to Beijing for 99 years in December 2017. India fears that China will use its control of the port to establish a military presence in the Indian Ocean.

The depleted reserves have also pushed the International Monetary Fund to step in and offer to replenish the funds to keep Sri Lanka out of an economic crisis.

  • But the IMF's cash comes with conditions that Sri Lanka modernize its tax code and raise gas prices to increase government revenue. Sri Lanka's leaders, caught in a tense political climate amid the economic downturn, are reluctant to agree to those terms.
What to watch
  • The IMF could stop sending cash to Sri Lanka if its government doesn't play by the rules.
  • Sri Lanka could sink deeper into debt with the Chinese if it picks up more infrastructure projects. "At the end of the day, the Chinese keep showing up with money, and Sri Lanka needs to accept it because they need to have economic development," Kumar said.

Go deeper: South Asian flash points in the India–China rivalry.

Go deeper

Updated 3 hours ago - Health

California surpasses 50,000 COVID-19 deaths

A man prepares a funeral arrangement in in Los Angeles, California, Feb. 12. Photo: Mario Tama/Getty Images

California's death toll from COVID-19 surpassed 50,000 on Wednesday, per Johns Hopkins data.

The big picture: It's the first state to record more than 50,000 deaths from the coronavirus.

4 hours ago - Technology

Facebook bans Myanmar military

A protester holds a placard with a three-finger salute in front of a military tank parked aside the street in front of the Central Bank building during a demonstration in Yangon, Myanmar. Photo by Aung Kyaw Htet/SOPA Images/LightRocket via Getty Images

Facebook said on Wednesday it would ban the rest of the Myanmar military from its platform.

The big picture: It comes some three weeks after the military overthrew the civilian government in a coup and detained leader Aung San Suu Kyi, causing massive protests to erupt throughout the country. Military leaders have been using internet blackouts to try to maintain power in light of the coup.

It's harder to fill the Cabinet

Data: Chamberlain, 2020, "United States of America Cabinet Appointments Dataset" Chart: Will Chase/Axios

It's harder now for presidents to win Senate confirmation for their Cabinet picks, an Axios data analysis of votes for and against nominees found.

Why it matters: It's not just Neera Tanden. The trend is a product of growing polarization, rougher political discourse and slimming Senate majorities, experts say. It means some of the nation's most vital federal agencies go without a leader and the legislative authority that comes with one.