Written by Krishan Francis | News agency
COLOMBO, Sri Lanka – The president of indebted Sri Lanka on Sunday asked China to restructure its loans and access preferential credit for imports of essential goods, as the island nation struggles in the midst of its worst economic crisis, in part due to Beijing-funded projects that do not generate revenue.
President Gotabaya Rajapaksa told visiting Chinese Foreign Minister Wang Yi that it would be “a great relief to the country if attention is paid to debt repayment restructuring as a solution to the economic crisis that has arisen in the face of the COVID-19 pandemic,” according to a statement issued by his office.
The statement said Rajapaksa asked Wang for concessional credit facilities for imports so that industries could operate without interruption. He also requested assistance to enable Chinese tourists to travel to Sri Lanka within a safe bubble.
Wang and Prime Minister Mahinda Rajapaksa, brother of the president, later visited the port of Colombo, a reclaimed island developed with Chinese investment, where they opened a theme park and set sail for 65 boats to celebrate 65 years of diplomatic relations between the two countries.
In his speech in Port City, Wang said that the continued spread and lack of control of the epidemic made economic recovery difficult and the two countries should mark the anniversary of diplomatic relations to work closer.
He did not go into details or announce any relief measures.
Wang arrived in Sri Lanka on Saturday from the Maldives on the last leg of a multinational trip that has taken him to Eritrea, Kenya and Comoros in East Africa.
Sri Lanka is facing one of its worst economic crises, as foreign reserves have fallen to about $1.6 billion, barely enough for a few weeks of imports. It also has external debt obligations of more than $7 billion in 2022, including repayments of $500 million in bonds in January and $1 billion in July.
The decline in foreign reserves is partly due to infrastructure projects built with Chinese loans that do not yield profits. China loaned money to build a seaport and airport in the southern Hambantota region, as well as an extensive network of roads.
Central bank figures show that current Chinese loans to Sri Lanka total about $3.38 billion, not including loans to state-owned enterprises, which are counted separately and are believed to be large.
“Technically speaking, we can claim bankruptcy now,” said Mottukrishna Sarvananthan, principal investigator at the Point Pedro Institute for Development. “When your net offshore assets are in the red, you are technically bankrupt.”
This situation has left families with severe shortages. People wait in long queues to buy basic commodities such as powdered milk, cooking gas and kerosene. Prices have risen sharply, and the central bank says the inflation rate rose to 12.1% at the end of December from 9.9% in November. Food price inflation rose to more than 22% in the same period.
Due to currency shortage, importers are unable to clear their cargo containing necessities and manufacturers cannot purchase raw materials from abroad.
Expatriate remittances also declined after the government ordered mandatory foreign currency conversion and exchange rate controls.
Rating agencies’ downgrades have resulted in Sri Lanka losing much of its borrowing power. In December, credit rating agency Fitch noted an increased likelihood of credit default.
The central bank has added a $1.5 billion Chinese currency swap to the reserves, but economists disagree on whether or not it can be part of foreign reserves.
Wang’s visit once again highlighted the regional power struggle between China and India, Sri Lanka’s closest neighbor and of which the island is part.
Before Wang spoke with Sri Lankan leaders, the country’s top Indian diplomat on Sunday morning inaugurated a train service from a station near Colombo to the north using booths provided through an Indian loan facility.
A statement from the Indian embassy quoted Vinod Jacob reminding “the priority that Indian Prime Minister Narendra Modi attaches to relations with Sri Lanka in line with the ‘neighbourhood first’ policy.”
He said the recent statement by Indian External Affairs Minister S Jaishankar that India will support Sri Lanka in difficult times was an affirmation of that policy in the current context.
“We can see Sri Lanka saddled with India and China for a possible rescue package,” said political analyst Ranga Kalansurya.
“India is slowing down for some time while China is trying to manipulate the situation to the limit,” he added.
China regards Sri Lanka as an important link in the global infrastructure initiative, the Belt and Road. Relations have recently been soured over a shipment of Chinese fertilizer allegedly containing harmful bacteria, and trade agreements signed with China’s rivals, the United States and India.
Kalensuriya said that China is unlikely to rescue Sri Lanka from its economic crisis.
“They will look for more job opportunities, and fish in the troubled waters of the country’s economic stagnation,” he said.