Sri Lanka turns to China for further $2.5–billion assistance 

Island nation battling an unprecedented economic crisis for months now

Sri Lanka has sought a new loan and buyer’s credit from China for $2.5 billion as the island nation struggles to cope with one of its worst economic meltdowns, a top Chinese official said, days after Colombo obtained a billion-dollar credit line from New Delhi.  

China is considering a fresh request from Sri Lanka for a loan of $1 billion and a credit line of $1.5 billion, Chinese Ambassador to Sri Lanka Qi Zhenhong told a media conference on Monday. “This is in addition to the $2.8–billion assistance that China has extended to Sri Lanka since the outbreak of the pandemic,” he said.

Sri Lanka is battling an unprecedented economic crisis fo rmonths now. A forex crunch has left the country scrambling for dollars to import essential items including fuel, food and medicines that are in short supply. The Rajapaksa government is in talks with the International Monetary Fund (IMF) for some relief, after initially resisting the idea. Colombo is also tapping bilateral loans from its partners, including New Delhi and Beijing.

Chinese assistance is being extended on “competitive terms”, Ambassador Qi said, adding China would “never take advantage of Sri Lanka” while helping the country in need, though sections within Sri Lanka remain sceptical of “more Chinese loans”. Especially after 2017, when Colombo leased its southern Hambantota port to China for 99 years, to converting its outstanding debt to China, into equity; and last year, when the Sri Lankan Parliament passed a controversial Bill on China–backed Port City 

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Asked if China had taken a decision on President Gotabaya Rajapaksa’s request to restructure Chinese loans, during Chinese Foreign Minister Wang Yi’s visit to Colombo in January, the Ambassador said both sides “were negotiating” the matter. “The ultimate goal is to help Sri Lanka solve its problems, we are looking at different ways,” he said, without sharing specific details. Before the pandemic, Sri Lanka owed China about $5 billion, amounting to 10% of the country’s external debt that is dominated by sovereign bonds.

Further, the two countries are negotiating a Free Trade Agreement — six rounds of talks are over — and its successful completion and signing will “open up” the Chinese market for Sri Lanka’s exports, the top Chinese official said.