Sri Lanka Seeks Chinese Debt Restructuring Amid Crisis

COLOMBO, Sri Lanka (AP/Reuters) — The president of debt-ridden Sri Lanka on Sunday asked China for the restructuring of its loans and access to preferential credit for imports of essential goods, as the island nation struggles in the throes of its worst economic crisis, partly due to Beijing-financed projects that don’t generate revenue.

President Gotabaya Rajapaksa told visiting Chinese Foreign Minister Wang Yi 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,” according to a statement from his office.

Rajapaksa asked Wang for a concessionary credit facility for imports so that industries can run without disruption, the statement said. He also requested assistance to enable Chinese tourists to travel to Sri Lanka within a secure bubble.

Wang and Prime Minister Mahinda Rajapaksa, the president’s brother, later visited Colombo’s Port City, a reclaimed island developed with Chinese investment, where they opened a promenade and inaugurated the sailing of 65 boats to commemorate the 65 years of diplomatic relations between the two countries.

Over the last decade China has lent Sri Lanka over $5 billion for highways, ports, an airport and a coal power plant. But critics charge the funds were used for white elephant projects with low returns, which China has denied.

Rajapaksa also requested China to provide “concessional terms” for its exports to Sri Lanka, which amounted to about $3.5 billion in 2020, the statement said, but did not give more details. Rajapaksa also proposed allowing Chinese tourists to return to Sri Lanka provided they adhere to strict COVID restrictions, including only staying at pre-approved hotels and visiting only certain tourist attractions.

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 (BRI), a long-term plan to fund and build infrastructure linking China to the rest of the world, but which others including the United States have labelled a “debt trap” for smaller nations.

Sri Lanka has to repay about $4.5 billion in debt this year starting with a $500 million International Sovereign Bond (ISB)maturing on Jan. 18.

A $1.5 billion yuan swap from China helped the island boost its reserves to $3.1 billion at the end of December.

Debt repayment to China in 2022 is likely to be smaller than its ISB commitments of $1.54 billion, at about $400 million-$500 million, a Sri Lankan finance ministry source told Reuters.

Sri Lanka’s central bank has repeatedly assured all debt repayments will be met and said funds for the January ISB has already been allocated.