New Delhi: According to reports, Sri Lankan President Gotabaya Rajapaksa met Chinese Foreign Minister Wang Yi on Sunday and asked the island nation to restructure its loan repayments to help manage its worsening financial crisis.
Wang was in Sri Lanka on a two-day visit to mark the 65th anniversary of diplomatic ties between the two countries.
China has extended over $5 billion in loans to Sri Lanka over the past decade for various infrastructure projects, including roads, ports and an airport. However, there are reports that the money was used for schemes with low returns.
“The president said it would be a great relief to the country if the restructuring of loan repayments could be looked at as a solution to the economic crisis caused by the COVID-19 pandemic,” Rajapaksa’s office was quoted as saying. As stated in a statement, a BBC report said.
The statement also said that China has been requested to extend “concessional” conditions for its exports to Sri Lanka, which stood at about $3.5 billion last year.
Sri Lanka depends on imports for many of its basic needs, and buys more goods from China than any other country.
Rajapaksa also said that Chinese tourists can return to Sri Lanka if they follow strict COVID-19 rules.
Before the pandemic, China was the main source of tourists to Sri Lanka.
Also read: Sri Lanka’s unprecedented economic crisis – what we know so far Explained
Sri Lanka’s economic crisis and China’s debt
For the past year or two, Sri Lanka has been in the grip of a severe debt and foreign exchange crisis, and the loss of tourism has made the situation worse.
Due to this crisis, prices have gone up and there has been a huge shortage. Long queues can be seen in front of provision stores across the country.
According to the BBC report, the country is heavily indebted and China is its fourth largest lender to international financial markets, after the Asian Development Bank and Japan.
The report said China has given Sri Lanka billions of dollars in soft loans, and the latter is almost on the verge of default due to its foreign exchange crisis.
Last year, there was a 1.5 billion yuan swap that helped Sri Lanka increase its reserves to $3.1 billion at the end of December, news agency Reuters reported.
The report, quoting a source in Sri Lanka’s finance ministry, said the repayment of debt to China in 2022 is around $400-500 million, which could fall short of international sovereign bond commitments of $1.54 billion.
Sri Lanka is to repay about $4.5 billion to other lenders this year, starting with a $500m ISB that matures on January 18.
The country has repeatedly said that it will fulfill all obligations. Sri Lanka’s central bank said last week that funds had been allocated for the ISB.
Sri Lanka is part of China’s Belt and Road Initiative, under which it plans and funds infrastructure connecting the country to the rest of the world.
The project mostly involves small and poor countries, and the US and some other countries have dubbed it a “debt trap”.
China has always denied the allegations.
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