NEW DELHI: China’s ambassador to Sri Lanka said his country is considering up to $2.5 billion in fresh assistance to the South Asian nation, the latest efforts to firm up finances as it struggles with a worsening economic crisis.
The development comes one week after Sri Lanka started talks with International Monetary Fund for a potential aid package as its foreign exchange reserves shrink and it struggles to import basic goods.
The ambassador, Qi Zhenhong, told reporters in Colombo on Monday that China is considering a $1 billion loan and a $1.5 billion credit line to purchase goods from China, both of which would be new lines of financing. He had said earlier in the same briefing that Sri Lanka was seeking a $1.5 billion credit facility. He provided no details on when an agreement would be finalized and in what form.
The government of President Gotabaya Rajapaksa this month dropped its long-standing resistance to a bailout from the IMF, after insisting for months that it could weather its foreign exchange crisis through bilateral support. The surge in oil prices, along with a loss of tourists from Russia and Ukraine, were among the recent blows to an economy already struggling to import necessities and fuel and suffering the worst inflation in Asia.
Sri Lanka has about $2 billion of foreign-currency reserves against total debt due this year of as much as $7 billion, including $1 billion of notes maturing in July. It has already drawn down a $1.5 billion swap line provided by China last year, a part of which was used to repay foreign-currency bonds due in January.
Sri Lanka’s dollar bonds due July 2022 were little changed at 66.1 cents on the dollar from 66 cents on Friday.
The island nation had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data. Colombo has also arranged financing from neighboring India, including a $1 billion credit line agreed last week.
The new financing comes a day after the Sri Lankan foreign ministry said the seventh round of negotiations over a free trade agreement will start soon.
“There’s huge benefit to Sri Lankan exports,” from a bilateral trade pact as there’s strong demand for the island nation’s product in China, Qi said.
The two countries have also started close negotiations on bilateral relations, Qi said Monday in response to query if debt restructuring talks have started.