Crisis-Ridden Sri Lanka Asks China To Restructure Debt Repayments

Sri Lanka President Gotabaya Rajapaksa made the request to Chinese Foreign Minister Wang Yi who was on a two-day visit to the island nation

Sri Lanka President Gotabaya Rajapaksa (L) with Chinese Foreign minister Wang Yi at an event during the latter's visit to Colombo Port city project, in Colombo on January 9, 2022 | Photo: AFP

New Delhi: Sri Lanka President Gotabaya Rajapaksa met Chinese foreign minister Wang Yi on Sunday and asked the Asian giant to restructure its debt repayments to help the island nation manage its worsening financial crisis, according to reports. 

Wang was in Sri Lanka on a two-day visit, to mark the 65th anniversary of diplomatic ties between the two countries.

China has lent Sri Lanka over $5 billion for different infrastructure projects including roads, ports and an airport In the last decade. There are, however, reports that the money was used for schemes with low returns.

"The president pointed out that it would be a great relief to the country if attention could be paid on restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of the Covid-19 pandemic," Rajapaksa's office was quoted as saying in a statement, a BBC report said.

The statement also said China has been requested to extend "concessional" terms for its exports to Sri Lanka, which amounted to around $3.5 billion last year.

Sri Lanka depends on imports for many of its basic necessities, and buys more goods from China than from any other country.

Rajapaksa also said Chinese tourists could return to Sri Lanka if they adhered to strict Covid-19 regulations.

China was Sri Lanka's main source of tourists before the pandemic.

Sri Lanka’s Economic Crisis And China Debt

For the past year or so, Sri Lanka has been hit by a severe debt and foreign exchange crisis, and the loss of tourism only worsened the situation.

The crisis has led to soaring prices and acute shortages. Long queues can be seen in front of provision stores across the country. 

The country is under heavy debt, and China is its fourth biggest lender, after international financial markets, the Asian Development Bank and Japan, according to the BBC report.

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, the report said.

There was a $1.5 billion yuan swap last year that helped Sri Lanka boost its reserves to $3.1 billion at December-end, news agency Reuters reported.

At about $400-$500 million, debt repayment to China in 2022 could be smaller than the international sovereign bond commitments of $1.54 billion, the report said, quoting a source in the Sri Lankan finance ministry. 

Sri Lanka has to repay about $4.5 billion this year to other lenders, starting with a $500m ISB that matures on January 18.

The country has repeatedly said it will meet all obligations. Sri Lanka's central bank said last week funds for the January ISB have already been allocated.

Sri Lanka is part of China's Belt and Road Initiative, under which it plans and funds infrastructure that links the country to the rest of the world.

The project mostly involves smaller and poorer nations, and the US and some other countries have dubbed it a "debt trap".

China has always rejected the accusations.