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Sri Lanka’s president asks China to restructure debt repayments

Rajapaksa
made the request during a meeting with Chinese Foreign Minister Wang Yi in
Colombo on Sunday.

Sri Lanka
has benefited from billions of dollars in soft loans from China but the island
nation is currently in the midst of a foreign exchange crisis placing it on the
verge of default, according to analysts.

“The
president pointed out that it would be a great relief to the country if
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,”
Rajapaksa’s office said in the statement.

China is Sri
Lanka’s fourth biggest lender, behind international financial markets, the
Asian Development Bank (ADB) and Japan.

Over the
last decade China has lent Sri Lanka over $5 billion for highways, ports, an
airport and a coal power plant. But critics charge the funds were used for
white elephant projects with low returns, which China has denied.

Rajapaksa
also requested China to provide “concessional terms” for its exports
to Sri Lanka, which amounted to about $3.5 billion in 2020, the statement said,
but did not give more details. Rajapaksa also proposed allowing Chinese
tourists to return to Sri Lanka provided they adhere to strict COVID
restrictions, including only staying at pre-approved hotels and visiting only
certain tourist attractions.

Before the
pandemic China was Sri Lanka’s main source of tourists and the island imports
more goods from China than from any other country.

Sri Lanka is
a key part of China’s Belt and Road Initiative (BRI), a long-term plan to fund
and build infrastructure linking China to the rest of the world, but which
others including the United States have labelled a “debt trap” for
smaller nations.

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Sri Lanka
has to repay about $4.5 billion in debt this year starting with a $500 million
International Sovereign Bond (ISB)maturing on Jan 18.

A $1.5
billion yuan swap from China helped the island boost its reserves to $3.1
billion at the end of December.

Debt
repayment to China in 2022 is likely to be smaller than its ISB commitments of
$1.54 billion, at about $400 million-$500 million, a Sri Lankan finance
ministry source told Reuters.

Sri Lanka’s
central bank has repeatedly assured all debt repayments will be met and said
funds for the January ISB has already been allocated.

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