Cash-strapped Sri Lanka calls for debt rescheduling from China

Sri Lankan Prime Minister Mahinda Rajapaksa, on the right, and Chinese Foreign Minister Wang Yi before their meeting in Columbus on Sunday January 9, 2022. AP - Eranga Jayawardena

Text by: RFI Follow

2 min

The request was made this Sunday during discussions with the Chinese Minister of Foreign Affairs.

The country has borrowed heavily and is caught in a vicious cycle of increasing borrowing to pay past debts and finance its deficits.

For the time being, China has not reacted.

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China is Sri Lanka's largest lender, a country whose economy relies heavily on tourism.

A sector plagued by the pandemic.

The country's foreign exchange reserves fell to just $ 1.5 billion at the end of November.

Running out of money to finance oil imports for its generators, the island, located in southern India, imposed electricity rationing on January 7, as the country's main electricity supplier could no longer buy fuel oil for its power plants.

In supermarkets, essential products have been rationed for months.

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Sri Lanka owes about 10% of its $ 35 billion foreign debt to China, or more than $ 3 billion, according to a government source.

But the sum could be even higher. 

Projects more costly than beneficial

For years, the country has borrowed heavily from China to launch ambitious infrastructure projects, some of which have become financial pitfalls.

This is the case with the construction of the port of Hambantota in the south of the island.

Faced with Beijing's refusal to restructure its loans in 2017, Colombo had to cede the operation of the port to a Chinese company for a period of 99 years, in exchange for the cancellation of a billion dollars of Chinese loan.

So far, the Chinese Embassy in Colombo has not commented on Sri Lanka's request. 

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