China reacted cautiously to Sri Lankan President Gotabaya Rajapaksa’s request for Beijing’s assistance in mitigating his country’s deepening forex crisis and spiraling external debt amid criticism from some sectors that expensive joint Chinese investments that are not profitable are partly responsible for Sri Lanka’s struggling economy.
Beijing said, it will help Colombo to the best of its capacity after China’s foreign minister Wang Yi returned after a series of diplomatic visits to the Maldives and Sri Lanka. “We believe that Sri Lanka will surely overcome the temporary difficulties as soon as possible and usher in renewed and greater development,” Chinese Foreign Ministry spokesperson told a media briefing in Beijing on Monday. Wang in his visit to Colombo on Sunday held talks with President Gotabaya Rajapaksa, his elder brother Mahinda Rajapaksa and Foreign Minister G L Peiris.
President Rajapaksa in his meeting with Chinese Foreign Minister Wang Yi in Colombo on Sunday pointed out that it would be a great relief to Sri Lanka if attention could be paid to restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of COVID-19 pandemic, according to a statement issued by the Sri Lankan President’s Office. It is estimated that Sri Lanka owes debt payments to China in the range of USD 1.5 to 2 billion this year. The international rating agencies have expressed doubts over the island nation’s ability to meet its international sovereign bond payments of USD 1500 million, the first USD 500 million of which falls next week for payment. The Lankan President also said that if a concessional trade credit scheme could be obtained for imports from China, it would enable industries to run smoothly.
Wang’s visit took place at a time when Sri Lanka is facing its all-time worst foreign exchange crisis. By December, the reserves position had plummeted to just one month’s imports or a little over USD 1 billion. China is seeking to deepen its ties with Sri Lanka making billions of dollars of investments in ports and infrastructure projects amid criticism of debt trap. China’s takeover of the Hambantota port on 99 years’ lease for USD 1.2 billion debt swap drew international concerns over Beijing acquiring strategic assets far away from home by providing heavy loans and investment to smaller nations.
The Hambantota port together with Colombo port city project where China is building a new city with reclaimed land in the sea are seen by observers as Beijing’s strategic assets in the Indian Ocean. Significantly, Wang during his talks with Sri Lankan Foreign Minister G L Peiris proposed to establish a forum for the development of Indian Ocean Island countries, which observers say is an attempt by Beijing to expand its influence in the region.