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Sri Lanka Asks China To Restructure Debt Repayment – Analysis

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Seeks a concessional trade-credit scheme for imports from China

The Sri Lankan President, Gotabaya Rajapaksa, on Sunday sought from the visiting Chinese Foreign Minister, Wang Yi, a restructuring of the repayment of Sri Lanka’s debts to China and also a concessional trade credit scheme to enable the island nation to import goods from China to make industries here operate smoothly.

The rescheduling of the repayment of loans would provide “great relief” to Sri Lanka, which had been badly hit by the COVID-19 pandemic, the President said.  China accounts for a little over 10% of Sri Lanka’s external debts. The Lankan President requested Wang to also assist in attracting Chinese tourists to Sri Lanka under the bio-bubble concept.

Wang said that he was “pleased to be back in Sri Lanka and that China would always support Sri Lanka as a close friend.” It is significant that Wang’s delegation had the Vice Chairman of China International Development Cooperation Agency, Zhang Maoyu.

Both China and Sri Lanka had brushed the nasty organic fertilizer import row under the carpet. The row over the allegedly contaminated fertilizer consignment had resulted in the Chinese company’s threating to go for international arbitration and  Sri Lanka’s taking the matter to  court. Eventually, Sri Lanka coughed up US$ 6.9 billion to settle the matter out of court.  

Economic Distress

Due to a variety of factors, including COVID-19 and gross mismanagement, Sri Lanka is now frightfully short of dollars even to import essentials. The disastrous decision to shift wholesale to organic farming immediately, has led to predictions of a food shortage in April this year. Government’s callousness has led to an unprecedented rise in prices of essentials.

The EconomyNext website quoted the Central Bank Governor, Ajith Nivard Cabraal, to say that the bank had sold about 3.6 tonnes of gold out of a 6.69 tonne stockpile it had at the beginning of 2021, leaving it with around 3.0 to 3.1 tonnes of gold. The gold sale was to boost liquid reserves, Governor Cabraal said. Sri Lanka’s gross foreign reserves had dropped to US$ 1.5 billion in November 2021 but recovered in December to touch US$ 3.1 billion. And yet, the demand on the dollar remains high in an import dependent economy.

What China Can Do

According to the Sri Lankan Ambassador to China, Dr. Palitha Kohona, China will respond positively to the distress call from Colombo. He told Daily Mirror, two big Chinese companies have sent their representatives to Sri Lanka.

“Power China is one. KY Electric is another. Power China is interested in building residential units in Colombo and outside.  KY Electric is interested in renewable energy.  We held talks with China Harbor, China Great Wall, Power Steel, etc. These are only a few of them. All of them have shown keen interest in investing in Sri Lanka catering not only to the domestic market but also to the wider regional markets.”

Kohona further said: “One of the reasons for nothing tangible to be eventuated so far is the inability to send their specialists to Sri Lanka to assess the situation at ground levels. Once travel is restored to some extent, we can expect many of these companies to show greater interest in Sri Lanka.  We have also encouraged travel companies to invest in Sri Lanka. One company with a client base of over 40 million is interested in developing resorts in Sri Lanka, like the resorts in southern Europe or Hainan Island.  We can expect it once things return to some sort of normalcy.  Many other companies will make a beeline to Sri Lanka.”

As regards investment in the China-built Colombo Port City, the envoy said: ” A very serious offer has been made by Power China and China Harbor. It is quite likely that over the next few months, they will invest substantial amounts in the Port City. Again, this will be a flagship investment which will hopefully be an attraction to others to follow-suit.”  

Indian Help   

India’s interest in giving a helping hand to Sri Lanka was evident when its Foreign Minister, S.Jaishankar, called his Lankan counterpart, G.L.Peiris, on the phone to say that “India will support Sri Lanka in these difficult times.”

This has heightened hopes that India will deliver, at the earliest, a US$ 1.9 billion financial aid package to Sri Lanka. India indicated that, apart from the existing US$ 400 million swap, there will be a US$ 500 million line of credit for the purchase of oil, and a US$ 1 billion credit line for purchases of medicines and food.

As planned, India and Sri Lanka reached an agreement on the oil tanks and signed an agreement after securing cabinet approval. Giving the basic contours of the agreement, the Lankan Minister of Energy, Udaya Gammanpila said that out of the 99 tanks, each with a capacity of 12,000 mt, the State-owned Ceylon Petroleum Corporation (CPC) will get 24 tanks to develop and use independently of the Lanka Indian Oil Corporation (LIOC); 14 of the tanks, currently used by the LIOC, will be leased to the LIOC for 50 years; and the balance of 61 tanks will be managed by the Trinco Petroleum Terminal Ltd.,(TPTL), a joint venture of the CPC and LIOC to be launched soon. In the TPTL, the CPC will own 51% of the shares and the LIOC will hold 49%. The TPTL will be a subsidiary of the CPC.

In effect, 85 out of the 99 tanks will be under the control of the CPC directly or indirectly. And the LIOC will manage only 14 tanks, Gammanpila said.

The Lankan Energy minister considers it a “historic” agreement since no government before had been able to get the tanks that were given wholesale to India in 2003. The Indian government has described the deal as a “milestone”. India did not consider the new agreement as a loss because it was committed to run the tanks as a joint venture way back in July 1987 as part of the Indo-Lanka Accord.

India’s total development portfolio in Sri Lanka is over USD 3.5 billion, of which around USD 570 million are purely grant projects.

Wang’s Gift to Maldivians

Following Wang Yi’s talks with the Maldivian leaders on January 7, China will be giving Maldivians 30-day free visas as soon as the COVID-19 pandemic loses its virulence and travel becomes possible. This is one of the agreements signed by the two countries during the two-day visit of the Chinese Foreign Minister.

The pact on Chinese visas is expected to boost bilateral trade, especially, Maldivian exports to China, which have been very small compared to imports from China. According to the UN, in 2019, China’s exports to the Maldives totaled US$ 338 million as against the Maldives’ exports to China which stood at US$ 30.4 million.

Explaining the significance of this visa concession, an editor of the Maldivian Financial Review said that it will help Maldivian traders and exporters to go to China more easily and stay longer to explore or negotiate deals for export or import. “It will also enable Maldivians to visit their loved ones who might be studying in China,” he added.

Apart from the visa agreement, an Economic and Technical Cooperation on Grant Aid focusing on the development of key areas such as social, livelihood, and infrastructure projects was inked.

Foreign Minister Shahid and State Councilor Wang Yi reiterated that Maldives and China will “increase their cooperation both bilaterally, through economic and development cooperation, health cooperation, in international fora such as the United Nations.”

Relations between China and the pro-West government of Ibrahim Solih are no long sour. Domestic compulsions have made the Solih government extend a hand of friendship to China.  

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P. K. Balachandran

P. K. Balachandran is a senior Indian journalist working in Sri Lanka for local and international media and has been writing on South Asian issues for the past 21 years.

One thought on “Sri Lanka Asks China To Restructure Debt Repayment – Analysis

  • January 10, 2022 at 1:36 am
    Permalink

    Chinese Communist police state helps the Rajapakse’s. How very surprising …NOT
    As the very old and true saying goes……birds of a feather flock together.

    Reply

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