Amid its deepening financial crisis, Sri Lanka requested China to restructure its debt repayments during Chinese State Councilor and Foreign Minister (FM) Wang Yi’s visit to the island nation on Sunday.
According to a statement released by Sri Lankan President Gotabaya Rajapaksa’s office: “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.”
In addition, Rajapaksa also said that “if a concessional trade-credit scheme could be initiated for imports from China,” which amounted to around $3.5 billion last year, “it would enable the industries to operate smoothly.”
Sri Lanka has borrowed heavily from China. Government data from April 2021 showed that Sri Lanka owes about 10% of its $35 billion foreign debt to China alone.
Meanwhile, according to a press release by China’s Ministry of Foreign Affairs, Rajapaksa also extended appreciation for “the important contributions made by Chinese enterprises to Sri Lanka’s economic revitalization and infrastructure construction.” Both sides also agreed to strengthen cooperation in the fields of economy, trade, finance, tourism, and infrastructure.
For his part, Wang said that both countries must make most of the Colombo Port City and Hambantota Port flagship projects, “tap the opportunities of the enforcement of the Regional Comprehensive Economic Partnership and China’s vast market, and discuss the restart of talks on a free trade agreement between China and Sri Lanka to contribute to Sri Lanka's economic recovery and development.” Wang added that the Chinese government would encourage Chinese enterprises to invest in Sri Lanka.
Had a very pleasant meeting with the Foreign Min of #China. Discussions centered around the logistics of facilitating the return of the many #lka med students to China. Also discussed were a host of issues inc Tourism, investments, #COVID19SL relief & post Covid preparedness. pic.twitter.com/ksqSYQWc7X
— Mahinda Rajapaksa (@PresRajapaksa) January 9, 2022
Wang also met with Prime Minister (PM) Mahinda Rajapaksa. The Sri Lankan PM noted that his country’s economy has been “greatly impacted by the pandemic.” “We appreciate China’s assistance towards our economic revival and financial stability. There is still a long way to go in establishing normalcy, but we’re confident that with support from friendly countries like China, we will be able to overcome these challenges soon,” he said.
To ease its financial woes, Sri Lanka announced a $1 billion relief package last week as it scrambles to bring an end to its ongoing economic crisis. The $1 billion relief plan is an attempt to satiate of demands of citizens who are angered about a 17% rise in the prices of food items, including wheat, sugar, and milk powder.
This increase has primarily been driven by Sri Lanka’s inability to import the items due to foreign reserve shortages. In November, its foreign exchange reserves were estimated at merely $1.5 billion, a significant drop from $7.5 billion in 2019. Although this has somewhat stabilised to $3.1 billion, the crisis is far from over, as this amount is enough to pay for just two months worth of imports.
Sri Lanka record-high inflation rate hit 12.1% in December, the second-highest across Asia, after only Pakistan. The country’s woes have been deepened by the COVID-19 pandemic, which has frozen its tourism-dependent economy. Reports suggest that Sri Lanka has $500 million worth of dollar bonds maturing on January 18. Furthermore, an additional $1 billion worth of dollar bonds will mature in July.
Aside from China, Sri Lanka has also sought assistance from India. During a recent trip to India, Finance Minister Rajapaksa requested an emergency $1 billion line of credit to import essential items such as food and medicines and an additional $500 million for petrol imports.
Perhaps keeping this in mind, Chinese state-owned news outlet Global Times wrote: “Analysts noted that there is no need for Indian media to get jittery about Wang’s visit, as India lacks neither the will nor the capacity to provide aid and cooperation for these developing countries on par with China.”
During his one-day visit to launch the celebrations marking the 65th anniversary of Sri Lanka-China bilateral relations, Wang also met with Sri Lankan FM G.L. Peiris.