Sri Lanka in talks with China over $ 2.5 billion credit aid: Chinese official
Sri Lanka in talks with China over $ 2.5 billion credit aid: Chinese official

Sri Lanka in talks with China over $ 2.5 billion credit aid: Chinese official

COLOMBO: China is considering offering a $ 1.5 billion credit facility to Sri Lanka, and a decision is expected soon, a top Chinese official said Monday (March 21) as part of efforts to help the island nation in the midst of its worst economic crisis for decades. .

Chinese Ambassador to Sri Lanka Qi Zhenhong told reporters that the two sides also discussed a separate loan of up to $ 1 billion requested by the Sri Lankan government.

He added that the South Asian nation was offered a $ 500 million loan from China Development Bank on March 18.

Sri Lanka is set to repay $ 4 billion worth of debt this year, including a $ 1 billion international government bond maturing in July. But its reserves fell to $ 2.31 billion at the end of February, down about 70 percent from two years ago.

The country is also struggling to pay for imports of essential items such as fuel and medicine and enforce nationwide power outages due to lack of fuel for electricity generation.

“We believe that our ultimate goal is to solve the problem, but there may be different ways of doing it,” Qi said in response to questions about possible restructuring of Chinese loans.

China is Sri Lanka’s fourth largest lender, after the international financial markets, Asian Development Bank and Japan.

Over the past decade, China has lent more than $ 5 billion to Sri Lanka for the construction of highways, ports, an airport and a coal-fired power plant. But critics say the funds were used for low-yield white elephant projects, which China has rejected.

President Gotabaya Rajapaksa asked China to help restructure debt repayment when he met with Chinese Foreign Minister Wang Yi in January, but China has not yet responded to the request.

Repayments to China are estimated at around US $ 400 to US $ 500 million, a source in the Ministry of Finance told Reuters.

Rajapaksa said last week that Sri Lanka will work with the International Monetary Fund to help resolve the country’s economic crisis with official negotiations starting in mid-April.

Before the pandemic, China was Sri Lanka’s main source of tourists, and the island imports more goods from China than from any other country.

Sri Lanka is a key part of China’s Belt and Road Initiative, a long-term plan to fund and build infrastructure that connects China with the rest of the world, but which others including the United States have described as a “debt trap” for smaller nations.

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