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

Island nation battling an unprecedented economic crisis for months now

March 21, 2022 06:30 pm | Updated March 31, 2022 12:45 am IST - COLOMBO

Chinese ambassador to Sri Lanka Qi Zhenhong attends a media briefing in Colombo, Sri Lanka, Monday, March 21, 2022.

Chinese ambassador to Sri Lanka Qi Zhenhong attends a media briefing in Colombo, Sri Lanka, Monday, March 21, 2022. | Photo Credit: AP

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.

Competitive terms, says Chinese envoy

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 

News Analysis | A perception shift in relations between Sri Lanka and China?

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.

Northern energy project

Commenting on Sri Lanka’s reported suspension of Chinese energy projects in the three northern islands off Jaffna in the Northern Province, Mr. Qi expressed disappointment that they were “interrupted for unknown reasons”.

In January 2021, Sri Lanka’s Cabinet cleared a proposal for Chinese firm Sinosoar-Etechwin to install “hybrid renewable energy systems” in Nainativu, Delft or Neduntheevu and Analaitivu, located in the Palk Bay. The small islands are connected to the Jaffna peninsula by a ferry service managed mostly by the Sri Lankan Navy.

Following the announcement of the project, India raised concern over the Chinese projects’ proximity to India’s southern coastline, and instead offered a grant to execute the same project. The project has not progressed since. Asked if it has been suspended or dropped, Mr. Qi said: “That is something you must ask Sri Lankan authorities. But interrupting a project won through a competitive bidding process does not send out a good message for foreign investors looking at Sri Lanka,” he said.  

Earlier this month, India’s National Thermal Power Corporation and the Adani Group signed separate agreemetns to set up renewable energy projects in Sri Lanka’s north and east. The Opposition has criticised the government for clearing the investments without a competetive bid.     

Also read: Chinese firm signs energy deal with Male

China would continue supporting development and livelihoods of the Tamil people in the Northern Province, said the Ambassador, whose visit to Jaffna in December 2021 drew much attention in the media, especially in India. “The Tamil people expressed a very strong friendship towards China,” he said.

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