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Sri Lanka seeks debt relief and import credit from China

Chinese Foreign Minister Wang Yi began his official tour of Sri Lanka on Sunday 09 seeking to advance Beijing’s ambitious Belt and Road Initiative as the island nation tries to rescue itself from a foreign currency and debt crisis, partly due to infrastructure built with Chinese loans that don’t generate revenue.

President Gotabaya Rajapaksa has extended  begging bowl seeking debt relief and import credit from China, following a meeting with visiting Chinese foreign minister Wang Yi, his office said.

Prime Minister Mahinda Rajapaksa also held discussions with the Chinese Minister on logistics of facilitating the return of the many Sri Lanka medical students to China. He further discussed a host of issues including  Tourism, investments Covid-19  relief and  post  pandemic  preparedness.

Wang arrived in Sri Lanka on Saturday from the Maldives on the last leg of a multi-city trip that also took him to Eritrea, Kenya and Comoros in Africa.

In Sri Lanka, Wang met with President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. Later, Wang and the prime minister delivered special addresses at Colombo’s Port City, a reclaimed island developed with Chinese investment.

The visit comes as Sri Lanka faces one of its worst economic crises, with foreign reserves down to around $1.6 billion, barely enough for a few weeks of imports. 

It also has foreign debt obligations exceeding $7 billion in 2022, including repayment of bonds worth $500 million in January and $1 billion in July.

China loaned money to build a seaport and airport in the southern Hambantota district, in addition to a wide network of roads. 

But the projects have failed to make money.Central Bank figures show that current Chinese loans to Sri Lanka total around $3.38 billion not including loans to state-owned businesses, which are accounted for separately.

Sri Lanka’s President Gotabaya Rajapaksa has sought debt relief and import credit from China, following a meeting with visiting Chinese foreign minister Wang Yi, his office said.

“The President pointed out that it would be a great relief to the country if the 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,” a statement from the President’s media office said.

“The President also said that if a concessional trade credit scheme could be initiated for imports from China, it would enable the industries to operate smoothly.”

Sri Lanka is facing forex shortages and lost reserves due to money printed to keep interest rates down after cutting taxes in a fiscal and monetary ‘stimulus’ amid a Coronavirus pandemic.

A meeting between the Minister of Foreign Affairs of the People’s Republic of China and Member of the State Council Wang Yi, and President Gotabaya Rajapaksa was held at the Presidential Secretariat, today (09) further strengthening the 65 years of diplomatic relations between China and Sri Lanka, the PMD said.

Chinese Foreign Minister Wang Yi on Sunday held talks with Sri Lankan Prime Minister Mahinda Rajapaksa and discussed a host of issues, including promoting tourism, investments, and fight against the COVID-19 pandemic as the two countries marked the 65th anniversary of diplomatic ties.

Mr. Wang, who is also the State Councilor, arrived in Colombo on Saturday from the Maldives on a two-day visit during which he is scheduled to meet the country’s top leadership.

However, on Friday, on the eve of Mr. Wang’s visit, the Sri Lanka’s People’s Bank released $6.9 million U.S. to the Chinese company.

China’s blacklisting of the Sri Lankan bank and the public clash between officials on both sides had come amid growing concerns over an acute agriculture crisis in Sri Lanka, following President Gotabaya’s decision in May last year to abruptly switch from chemical to organic fertilisers.

The decision triggered protests from farmers who said the fertiliser ban would result in reduction in harvest, leading to a food crisis this year.

China in December suspended a project to install hybrid energy plants in three islands of Sri Lanka, citing “security concern” from a “third party”, amid reports of India raising concern over its location.

In early 2021, India lodged a “strong protest” with Lanka on the award of the tender to the Chinese company for the construction of renewable energy power plants in Delft, Nagadeepa and Analthivu.

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