Sri Lanka has asked China for a $2.5 billion loan and buyer’s credit as the island nation grapples with one of its worst economic meltdowns, according to a top Chinese official, days after Colombo received a billion-dollar credit line from New Delhi.
According to the Chinese Ambassador to Sri Lanka Qi Zhenhong, China is considering a fresh request from Sri Lanka for a $1 billion loan and a $1.5 billion credit line. “This comes on top of the $2.8 billion in aid China has given Sri Lanka since the outbreak of the pandemic,” he said.
Sri Lanka has been in the midst of an unprecedented economic crisis for months. Due to a currency shortage, the country is scrambling for dollars to import essential items such as fuel, food, and medicines. After initially rejecting the idea, the Rajapaksa government is now in talks with the International Monetary Fund (IMF) for assistance. Colombo is also relying on bilateral loans from its allies, such as New Delhi and Beijing.
Chinese envoy: Competitive terms are important and will never take advantage of Sri Lanka
Ambassador Qi stated that Chinese assistance is being provided on “competitive terms,” and that China will “never take advantage of Sri Lanka” while assisting the country in need, though some in Sri Lanka remain skeptical of “more Chinese loans.” Especially after Colombo leased its southern Hambantota port to China for 99 years in 2017 to convert its outstanding debt to equity, and the Sri Lankan Parliament passed a controversial Bill on China-backed Port City last year.
During Chinese Foreign Minister Wang Yi’s visit to Colombo in January, when asked if China had made a decision on President Gotabaya Rajapaksa’s request to restructure Chinese loans, the Ambassador said both sides “were negotiating” the matter. “Our ultimate goal is to assist Sri Lanka in resolving its problems, and we are looking at various options,” he said, without providing specifics. Sri Lanka owed China $5 billion prior to the pandemic, accounting for 10% of the country’s external debt, which is dominated by sovereign bonds.
Furthermore, the two countries are negotiating a Free Trade Agreement, which will “open up” the Chinese market for Sri Lankan exports if it is successfully completed and signed, according to the top Chinese official.
Energy project in the north
Mr. Qi expressed disappointment that Chinese energy projects in the three northern islands off the coast of Jaffna in Sri Lanka’s Northern Province had been “interrupted for unknown reasons.”
Sri Lanka’s Cabinet approved a proposal in January 2021 for Sinosoar-Etechwin to install “hybrid renewable energy systems” in the Palk Bay villages of Nainativu, Delft, Neduntheevu, and Analaitivu. A ferry service, mostly run by the Sri Lankan Navy, connects the small islands to the Jaffna peninsula.
Following the project’s announcement, India expressed concern about the Chinese projects’ proximity to India’s southern coast and instead offered a grant to carry out the same project. Since then, nothing has happened with the project. “You must ask Sri Lankan authorities,” Mr. Qi said when asked if it had been suspended or dropped. Interrupting a project that was won through a competitive bidding process, on the other hand, does not send a positive message to foreign investors interested in Sri Lanka,” he said.
Separate agreements were signed earlier this month by India’s National Thermal Power Corporation and the Adani Group to set up renewable energy projects in Sri Lanka’s north and east. The government has been chastised by the opposition for clearing the investments without a competitive bid.
The Ambassador, whose visit to Jaffna in December 2021 drew widespread attention in the media, particularly in India, stated that China would continue to support the development and livelihoods of the Tamil people in the Northern Province. “The Tamil people have expressed a deep friendship with China,” he said.