China ponders package to ease economic crisis in Sri Lanka | Business

COLOMBO, Sri Lanka (AP) — China’s ambassador to Sri Lanka said Monday he is considering a $2.5 billion aid request to help the island nation through a debt and currency crisis. .

Qi Zhenhong told reporters that Beijing is considering the Sri Lankan government’s appeal for a $1 billion loan and a $1.5 billion line of credit.

Sri Lanka is due to make nearly $7 billion in payments on foreign loans this year, but Qi has not made a commitment on a request to restructure China’s loans to Sri Lanka.

“Our ultimate goal is to fix the problem, but there may be different ways to do that,” he said.

Sri Lanka’s foreign exchange reserves are dwindling at a time when it faces huge debts. The country’s struggle to pay for imports has caused shortages of medicine, fuel, milk powder, cooking gas and other necessities, with people queuing for fuel.

Residents are experiencing daily power cuts due to a shortage of fuel to run power plants, and dry weather has undermined hydroelectric capacity.

The Central Bank allowed the local currency to float freely earlier this month, causing prices to rise sharply.

Sri Lanka’s economy relies heavily on tourism and trade and the pandemic has been disastrous, with the government estimating a loss of $14 billion over the past two years. The economy is estimated to have contracted by 1.5% in July-September 2021, according to the central bank.

Sri Lanka’s foreign exchange reserves are dwindling in part because of construction projects built with Chinese loans that don’t bring in money. China has loaned the country money to build a seaport and an airport in the southern district of Hambantota and an extensive road network.

Central Bank figures show that current Chinese loans to Sri Lanka total around $3.38 billion, not including loans to state-owned enterprises, which are counted separately and considered large.

Qi said that since the outbreak of COVID-19 in 2020, China has provided $2.8 billion in financial aid to Sri Lanka.

“Our goal is to help Sri Lanka overcome the current difficulties,” he said.

Neighboring India last week extended a $1 billion line of credit to Sri Lanka for importing food, medicine and other essentials from India.

The two Asian giants are vying for influence in the Indian Ocean and see Sri Lanka as strategically important.

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