Sri Lanka asks China to restructure its debt repayment – Analysis – Eurasia Review

Seek a concessional trade credit regime for imports from China

Sri Lankan President Gotabaya Rajapaksa on Sunday called on visiting Chinese Foreign Minister Wang Yi to restructure the repayment of Sri Lanka’s debts to China as well as a concessional trade credit program to enable the nation islander to import goods from China to operate industries here smoothly.

Rescheduling loan repayments would bring “great relief” to Sri Lanka, which had been hit hard by the COVID-19 pandemic, the president said. China accounts for just over 10% of Sri Lanka’s external debt. The Lankan president asked Wang to also help attract Chinese tourists to Sri Lanka under the concept of the bio-bubble.

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

China and Sri Lanka had both swept the ugly row of organic fertilizer imports under the rug. The dispute over the shipment of allegedly contaminated fertilizer led the Chinese company to threaten international arbitration and Sri Lanka to take the case to court. Ultimately, Sri Lanka paid $ 6.9 billion to settle the case out of court.

Economic distress

Due to various factors, including COVID-19 and gross mismanagement, Sri Lanka is now woefully short of dollars even to import essentials. The disastrous decision to immediately switch to organic wholesale farming led to predictions of a food shortage in April of this year. The government’s insensitivity has led to an unprecedented increase in the prices of basic necessities.

the EconomyNext The website quoted Central Bank Governor Ajith Nivard Cabraal as saying that the bank had sold around 3.6 tonnes of gold out of a 6.69-tonne stockpile it had at the start of 2021, causing it leaves about 3.0 to 3.1 tonnes of gold. The sale of gold was to increase liquid reserves, Governor Cabraal said. Sri Lanka’s gross foreign exchange reserves fell to US $ 1.5 billion in November 2021, but recovered in December to reach US $ 3.1 billion. And yet demand for the dollar remains high in an import-dependent economy.

What China can do

According to Sri Lanka’s Ambassador to China, Dr Palitha Kohona, China will respond positively to Colombo’s distress call. He said Daily Mirror, two large Chinese companies sent their representatives to Sri Lanka.

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

Kohona added: “One of the reasons that nothing tangible has happened so far is the inability to send its specialists to Sri Lanka to assess the situation at ground level. Once travel is restored to some extent, we can expect many of these companies to show more interest in Sri Lanka. We have also encouraged travel agencies to invest in Sri Lanka. A company with a client base of over 40 million customers is interested in developing beach resorts in Sri Lanka, such as resorts in southern Europe or the island of Hainan. We can expect this once things return to some sort of normalcy. Many more companies will be heading directly to Sri Lanka. “

Regarding the investment in the port city of Colombo, built in China, the envoy said: “A very serious offer has been made by Power China and China Harbor. It is very likely that over the next few months they will invest substantial sums in the port city. Again, this will be a flagship investment that will hopefully attract others to follow. ”

Indian aid

India’s interest in helping Sri Lanka was evident when its Foreign Minister, S. Jaishankar, called his Lankan counterpart, GLPeiris, on the phone to tell him that “India will support Sri Lanka in these difficult times ”.

This has raised hopes that India will provide $ 1.9 billion in financial assistance to Sri Lanka at the earliest. India has indicated that in addition to the existing exchange of US $ 400 million, there will be a US $ 500 million line of credit for the purchase of oil and a US $ 1 billion line of credit for the purchase of oil. the purchase of medicines and food.

As expected, India and Sri Lanka have reached an agreement on oil reservoirs and signed an agreement after obtaining cabinet approval. Outlining the deal, Lankan Energy Minister Udaya Gammanpila said that of the 99 reservoirs, each with a capacity of 12,000 tonnes, the state-owned Ceylon Petroleum Corporation (CPC) will have 24 tanks to develop and use. independently of the Lanka Indian Oil Corporation (LIOC); 14 of the tanks, currently used by LIOC, will be leased to LIOC for 50 years; and the remainder of the 61 reservoirs will be managed by Trinco Petroleum Terminal Ltd. (TPTL), a joint venture of CPC and LIOC which will be launched soon. In the TPTL, the CPC will own 51% of the shares and the LIOC will own 49%. TPTL will be a subsidiary of CPC.

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

The Lankan Minister of Energy considers it a “historic” agreement since no government before had been able to obtain the reservoirs which were given in bulk to India in 2003. The Indian government has called the agreement a “milestone”. India did not view the new deal as a loss because it had committed to operate the reservoirs as a joint venture in July 1987 under the Indo-Lankan accord.

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

Wang’s gift to the Maldivians

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

The Chinese visa pact is expected to boost bilateral trade, especially Maldivian exports to China, which have been very low compared to imports from China. According to the UN, in 2019, China’s exports to the Maldives totaled US $ 338 million compared to US $ 30.4 million for Maldives exports to China.

Explaining the importance of this visa grant, an editor of the Maldives Financial Review said it would help Maldivian traders and exporters to travel to China more easily and stay longer to explore or negotiate export or import deals. “It will also allow Maldivians to visit their relatives who could study in China,” he added.

In addition to the visa agreement, economic and technical cooperation in grant aid focused on the development of key areas such as social, livelihood and infrastructure projects was signed.

Foreign Minister Shahid and State Councilor Wang Yi reaffirmed that the Maldives and China “will intensify their bilateral cooperation, through economic and development cooperation, health cooperation, in forums international organizations such as the United Nations ”.

Relations between China and the pro-Western government of Ibrahim Solih are no longer sour. Domestic constraints have prompted the Solih government to extend a hand of friendship to China.

Tana T. Thorsen