COLOMBO, April 26 – Sri Lanka has begun discussions with China about refinancing its debt, a cabinet spokesman said on Tuesday, as Colombo struggles with its worst financial crisis in decades.
China has suggested to Colombo that it would prefer to refinance the debt, said Nalaka Godahewa, Sri Lanka’s media minister.
“Now since the IMF is willing engage with Sri Lanka the other countries are aware we have support. Already we have been promised support from the World Bank and other agencies,” Gohahewa said, adding discussions with Beijing were at an early stage.
Government sources have said China has disagreed on restructuring its debts amounting over 3 billion US dollars and Sri Lanka has decided for a debt restructuring to save its few dollars to pay for essential imports amid seeking assistance from the International Monetary Fund (IMF).
“Though the West is mostly in the process of extending their help for debt restructuring proposal which has the IMF backing, China has expressed its stance that since it has been lending for many countries around the world, debt restructuring for one country could have an impact on the other countries as well,” Godahewa told a weekly cabinet briefing Tuesday.
“Instead of debt restructuring, China has said that it is ready lend us another loan to repay its loans.”
“It is on preliminary discussion stage and I hope the Finance Minister will explain this in the parliament in detail.”
Chinese Ambassador Qi Zhenhong on Monday said China did its best to help Sri Lanka not to default but Colombo “went to the IMF and decided to default”.
He also said the discussion for another 2.5 billion loans has been halted temporarily until there is clarity on the debt restructuring from the Ambassador Qi told reporters at a media briefing in Colombo.
Sri Lankan Finance Minister Ali Sabry was in Washington last week to talk to the IMF, the World Bank, India and others about financing help for the island nation, which has suspended payments on portions of its $51 billion in external debt.
Sri Lanka’s economy was hit hard by the pandemic and tax cuts by the populist government, leading to dwindling foreign currency reserves and shortages of fuel, food and medicines that have brought thousands onto the streets in sporadically violent protests.
China’s $3.5 billion of loans to Sri Lanka make it the joint-largest bilateral creditor.
President Gotabaya Rajapaksa asked China to help restructure debt repayments when he met Chinese Foreign Minister Wang Yi in January.
China’s foreign ministry and its embassy in Colombo could not immediately be reached for comment.