ECONOMYNEXT – China mulls US$2.5 billion loan and buyer’s credit to Sri Lanka’s Ambassador to Beijing in Colombo Qi Zhenhong as the country struggles to repay foreign debt amid crisis of forex triggered by printed money to impose low interest rates in addition to tax cuts.
“We are looking at a loan of 2.5 billion – 1 billion dollars, a buyer’s credit of 1.5 billion dollars,” Ambassador Qi told reporters in Colombo.
A buyer’s credit is usually a loan from Exim Bank of China to purchase goods and services from the People’s Republic and has been used to finance the island’s infrastructure in the past.
Sri Lankan President Gotabaya Rajapaksa called for a debt restructuring of China last year as the country was downgraded by ratings agencies to CC and foreign exchange reserves collapsed as money was printed.
“Sri Lanka and China have entered into close negotiations on bilateral relations,” Ambassador Qi told reporters in response to a question about President Rajapaksa’s request for debt restructuring.
“As a true friend, we will support Sri Lanka. Sri Lanka has a reputation for paying its debts.
Around 2018, China provided budget support loans to Sri Lanka to more than repay the installments.
China is also pushing Sri Lanka to resume talks on a free trade deal which is needed to make investments work.
Sri Lanka has said it expects a new loan from China to repay maturing debts following President Rajapaksa’s request for debt rescheduling.
Ambassador Qi said Sri Lanka had requested a US$1.5 billion facility from China. China also provided a renminbi loan equivalent to US$1.5 billion to the central bank, which was drawn down to boost reserves.
Sri Lanka is also getting a US$500 million oil credit from India and another US$1 billion loan has been signed with India for food and medicine imports.
Multilateral lenders, including the Asian Development Bank and the World Bank, halted budget support lending several years ago due to the country’s reluctance to undertake growth-enhancing reforms and only provide project.
The IMF has declared Sri Lanka’s debt unsustainable amid a currency crisis triggered by money being printed to keep interest rates low.
Sri Lanka also sought support from the International Monetary Fund and floated the rupee, but economists called for a rate hike to make the float work, end money printing and slow domestic credit. (Colombo/Mar21/2022)