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China resolutely holds back loans and aid to Sri Lanka

In a devastating move against the island nation, China has resolutely held back its assistance to avert the man-made economic crisis , despite being Sri Lanka’s single biggest bilateral investor and a consistent and unreserved supporter in the UN Human Rights Council.

China’s humanitarian aid of $76 million during the current crisis turns into insignificance in comparison with India’s humanitarian aid.

Sri Lanka urgently needs foreign exchange support and material aid, but China has been advising Sri Lanka to follow an “independent” foreign policy, by which it means that it should break off from India, the IMF and the West, and hitch its wagon to China.

The Chinese have also been insisting that Sri Lanka should set its economic house in order and make it more hospitable to Chinese investments.

Sri Lanka should also use the infrastructure built with Chinese loans and enter into a Free Trade Agreement with China.

. In March 2022, Chinese Ambassador Qi Zhenhong said that Beijing is considering a fresh loan of $1 billion and a credit line of $1.5 billion in lieu of rescheduling repayment of the existing loans.

However, the promised loan and buyers’ credit did not materialise . They are apparently tied to the signing of the FTA which has been pending since 2015. But FTAs have been anathema for Sri Lankan governments.

China has suspended this US$1.5 loan and credit line as the country’s foreign reserves has dropped to$1.92 billion which is very much less than 3 months of imports, one of the main conditions in the the loan agreement.

China has not given consent to Sri Lanka’s rerquest to change the loan condition.

Reflecting Wang Yi’s view, the Chinese Foreign Ministry spokesman, Zhao Lijiang, said on June 8 that Sri Lanka should “boost its own effort, protect the stability and credibility of the investment and financing partners and ensure the stability and credibility of the investment and financing partners and ensure the stability and credibility of its investment and financing environment.

But what Sri Lanka urgently needs is not advice on how to run the economy, but financial and material aid to meet the basic needs of the people. But this has not been forthcoming. President Gotabaya says China has lost interest in South Asia and is concentrating on South East Asia and Africa.

But Prime Minister Ranil Wickremesinghe differs and says that Beijing has significant stakes in Lanka and that efforts are being made to make China amend the conditions attached to its loans.

Meanwhile, the IMF is expecting Beijing to join in its efforts to get Lanka’s loan repayment schedule restructured because China is a major lender.

According to Finance Ministry statistics, China’s Public and Publicly Guaranteed loans to Sri Lanka at the end of 2021 constituted 19.9% of the total PPG loans. And the debt service on that debt stock was 20% of the total PPG debt service.

It has been observed that when Sri Lanka suspended the repayment of foreign loans totalling $26.4 billion on April 12 this year, the Chinese component amounted to $7.1 billion

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