China plans $2.5 billion in loans and credits to Sri Lanka
NEW DELHI: China’s ambassador to Sri Lanka says his country is considering up to $2.5 billion in new aid to the South Asian nation, the latest efforts to shore up finances as it battles the worsening of the economic crisis.
The development comes a week after Sri Lanka entered talks with the International Monetary Fund for a potential aid package as its foreign exchange reserves dwindle and it struggles to import basic commodities.
Ambassador Qi Zhenhong told reporters in Colombo on Monday that China is considering a $1 billion loan and a $1.5 billion line of credit to purchase goods from China, both of which would be new lines of financing. He had said earlier in the same briefing that Sri Lanka was seeking a $1.5 billion credit facility. He did not provide any details on when a deal would be finalized and in what form.
The government of President Gotabaya Rajapaksa this month abandoned its longstanding resistance to an IMF bailout, after insisting for months that it could overcome its currency crisis with bilateral support. Soaring oil prices, along with the loss of Russian and Ukrainian tourists, were among the recent blows to an economy that is already struggling to import basic necessities and fuel and suffering from the worst inflation in Asia. .
Sri Lanka has about $2 billion in foreign currency reserves against total debt due this year of up to $7 billion, including $1 billion in notes maturing in July. It has already drawn a $1.5 billion swap line provided by China last year, part of which was used to repay foreign currency obligations due in January.
Sri Lankan dollar bonds due July 2022 were little changed at 66.1 cents to the dollar from 66 cents on Friday.
The island nation owed about $3.5 billion in debt to China at the end of 2020, excluding loans to state-owned enterprises, central bank data showed. Colombo has also arranged financing from neighboring India, including a $1 billion line of credit agreed last week.
The new funding comes a day after the Sri Lankan Foreign Ministry announced that the seventh round of negotiations on a free trade agreement would begin soon.
“Sri Lankan exports have huge advantages,” Qi said.
The two countries have also started close negotiations on bilateral ties, Qi said Monday in response to questions about whether talks on debt restructuring had started.