China on Monday reacted cautiously to Sri Lankan President Gotabaya Rajapaksa’s request for Beijing’s assistance in mitigating his country’s deepening forex crisis and spiralling external debt, saying it will help Colombo to the best of its capacity.
President Rajapaksa in his meeting with Chinese Foreign Minister Wang Yi in Colombo on Sunday raised the issue of Lanka’s deepening forex crisis and spiralling external debt, and sought Beijing’s assistance.
He pointed out that it would be a great relief to Sri Lanka if attention could be paid to restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of COVID-19 pandemic, according to a statement issued by the Sri Lankan President’s Office.
It is estimated that Sri Lanka owes debt payments to China in the region of USD 1.5 to 2 billion this year.
The international rating agencies have expressed doubts over the island nation’s ability to meet its international sovereign bond payments of USD 1500 million, the first USD 500 million of which falls next week for payment.
The Lankan President also said that if a concessional trade credit scheme could be obtained for imports from China, it would enable industries to run smoothly.
Wang’s visit took place at a time when Sri Lanka is facing its all-time worst foreign exchange crisis.
By December, the reserves position had plummeted to just one month’s imports or a little over USD 1 billion.
Asked if China will meet Lanka’s request for debt relief and criticism that part of why the island is struggling economically is due to expensive joint Chinese investments that are not profitable, Foreign Ministry spokesperson Wang Wenbin said on Monday that China has been providing assistance to Sri Lanka’s “economic and social development to the best of its capacity and will continue to do so in the future.” “We believe that Sri Lanka will surely overcome the temporary difficulties as soon as possible and usher in renewed and greater development,” he told a media briefing here.
Wang in his visit to Colombo on Sunday held talks with President Gotabaya Rajapaksa, his elder brother Mahinda Rajapaksa and Foreign Minister G L Peiris.
China is seeking to deepen its ties with Sri Lanka making billions of dollars of investments in ports and infrastructure projects amid criticism of debt trap.
China’s takeover of the Hambantota port on 99 years’ lease for USD 1.2 billion debt swap drew international concerns over Beijing acquiring strategic assets far away from home by providing heavy loans and investment to smaller nations.
The Hambantota port together with Colombo port city project where China is building a new city with reclaimed land in the sea were viewed with concern, especially in India as Beijing seeks to increase its presence in India’s backyard the Indian Ocean.
Last month, China suspended a project to install hybrid energy plants in three islands of Sri Lanka’s north, citing “security concern” from a “third party”, amid reports of Indian concern over its location which is not far from Tamil Nadu’s coast.
Significantly, Wang during his talks with Sri Lankan Foreign Minister G L Peiris proposed to establish a forum for the development of Indian Ocean island countries, which observers say is an attempt by Beijing to expand its influence in the region.
“During my visit to several Indian Ocean island countries this time, I feel that all island countries share similar experiences and common needs, with similar natural endowment and development goals, and have favourable conditions and full potential for strengthening mutually beneficial cooperation,” a press release by the Chinese Foreign Ministry quoted Wang as saying.
“China proposes that a forum on the development of Indian Ocean island countries should be held at an appropriate time to build consensus and synergy and promote common development,” he said, adding that Sri Lanka can play an important role in it.
Before his Colombo visit, Wang also visited the Maldives where he held talks with top leaders of the island nation to deepen ties with China.
Six island nations are located in the Indian Ocean, namely Comoros, Madagascar, the Maldives, Mauritius, Seychelles, and Sri Lanka.
Meanwhile, Sri Lankan President’s official Twitter handle on Monday quickly corrected the misspelt name of Chinese Foreign Minister Wang.