COLOMBO: China is considering offering a US $1.5 billion credit facility to Sri Lanka, and a decision is expected soon, a top Chinese official said on Monday, as part of efforts to help the island nation amid its worst economic crisis in decades.
The Chinese ambassador to Sri Lanka Qi Zhenhong told reporters that the two sides were talking about a separate loan of up to US $1 billion, which the Sri Lankan government had requested.
He said that the South Asian nation was offered a loan of US $500 million from the China Development Bank on Mar 18.
Sri Lanka has to repay US $4 billion in debt this year, including a US $1 billion international sovereign bond maturing in July. As of February, its reserves fell to US $2.31 billion, down around 70 per cent from two years ago.
The country is struggling to make payments for essentials such as fuel and medicines and enforce nationwide power cuts due to a lack of fuel for power generation.
Qi said in response to questions on possible restructuring of the Chinese loans that we believe our ultimate goal is to solve the problem but there may be different ways to do so.
China is Sri Lanka's fourth biggest lender, behind international financial markets, the Asian Development Bank and Japan.
Over the last decade, China has lent Sri Lanka more than $5 billion for the construction of highways, ports, an airport and a coal power plant. The funds were used for white elephant projects with low returns, which China denies, according to critics.
President Gotabaya Rajapaksa asked China to help restructure debt when he met Chinese Foreign Minister Wang Yi in January, but China has yet to respond to the request.
Repayments to China are estimated to be between US $400 and US $500 million, according to a finance ministry source.
Rajapaksa said last week that Sri Lanka will work with the International Monetary Fund to solve the country's economic crisis with official talks to begin in mid-April.
Before the epidemic, China was Sri Lanka's main source of tourists and the island imports more goods from China than any other country.
Sri Lanka is a key part of China's Belt and Road Initiative, a long-term plan to fund and build infrastructure linking China to the rest of the world, but others, including the United States, have labeled it a debt trap for smaller nations.