03/28/2022, 12.40
SRI LANKA-CHINA
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Colombo asks Beijing for another .5 billion in loans

by Arundathie Abeysinghe

The amount would be added to the 2.8 billion the Chinese have granted since the outbreak of the pandemic. New economic agreements also with India. Blackouts continue due to lack of fuel.

Colombo (AsiaNews) - Sri Lanka has made a new request to China for 2.5 billion dollars: a loan of one billion dollars and a line of credit of 1.5 billion, which would be added to the 2.8 billion in assistance that Beijing has granted Sri Lanka since the outbreak of the Covid-19 pandemic.

The island nation is facing its worst economic crisis since independence. On 18 March, the Sri Lankan government was offered a 0 million loan from the China Development Bank.

Last year, President Gotabaya Rajapaksa had asked China to restructure the debt due to the depletion of foreign reserves. The request came after international rating agencies downgraded Colombo's sovereign debt.

Over the past decade, Beijing has lent Sri Lanka more than USD 5 billion to build an airport, a port, highways and a coal-fired power plant. In contrast to Chinese positions, critics are of the opinion that the funds have been used for 'desert cathedrals' that will have low economic returns.

Institutionally, China is Sri Lanka's largest lender after the Asian Development Bank and Japan.

In September 2020, for example, a nation on the verge of bankruptcy, Laos, sold part of its power grid to a majority Chinese-owned company for USD 600 million in a bid to relieve debt from Chinese creditors. Sri Lanka could find itself in the same situation in the future if it is unable to pay its debts.

Many economists believe Sri Lanka and China are trying to revive a bilateral free trade agreement. Six rounds of negotiations have been held so far: if the treaty were to be finally signed, the vast Chinese market would open up to Sri Lankan producers, traders and exporters. Observers believe the deal will stimulate bilateral trade and help reduce Sri Lanka's dependence on traditional US and European markets.

Colombo is not only looking at China. A few days ago, the Sri Lankan government also obtained a one billion dollar credit line from India. The agreement was signed on 17 March, during the visit of Finance Minister Basil Rajapaksa, with the State Bank of India. 

Sri Lanka has to repay about USD 4 billion of debt in 2022, including a USD 1 billion government bond maturing in July. The country's reserves, however, fell to USD 2.31 billion in February.

Due to foreign currency shortages, Sri Lanka struggled to pay for imports of basic necessities including food, fuel and medicine. Power cuts were imposed across the country due to the shortage of fuel to produce energy. 

The situation has led to a series of protests by the political opposition and citizen groups who blame the Rajapaksa government for the crisis.

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