Sri Lanka intends to reschedule its debt to China for this serious reason

Cash-strapped Sri Lanka has called for rescheduling of its huge debt to China, which is a burden on the country, in Sunday talks with the foreign minister in visit Wang Yi, the presidential office said.

The island’s economy, which is dependent on tourism, was hit by the epidemic and the depletion of its foreign exchange reserves led to the sale of food in supermarkets through rations and a shortage of basic necessities.

China, Sri Lanka’s main ally, is the country’s largest lender and Wang’s visit comes after warning from international rating agencies that President Gotabaya Rajapaksa’s government may be close to default, AFP reported.

“The president said he would reschedule debt payments in light of the economic crisis post-pandemic would be a huge relief, “Rajapaksa’s office said in a note.

Sri Lanka’s foreign exchange reserves fell to just $ 1.5 billion at the end of November, enough to pay for the equivalent of about a month’s worth of imports.

The island’s main electrical facility began rationing electricity Friday after running out of foreign currency to import oil to run its heat generators.

China was responsible for about 10% of Sri Lanka’s $ 35 billion external debt as of April 2021, according to government data.

Officials pointed out that China’s debt could be much higher when taking into account loans to state-owned companies and the central bank.

Sri Lanka has taken in heavily borrowed from China in the decade until 2015, when Rajapaksa’s older brother Mahinda was president, in order to build ambitious infrastructure projects, some of which were costly and unnecessary.

Unable to repay a $ 1.4 billion loan to build a port in the south of the island, Colombo was forced to lease the facility to a Chinese company for 99 years in 2017.

The United States and India have warned that the Port of Hambantota, located along vital international sea routes between east and west, could give China a military foothold in the Indian Ocean.

Colombo and Beijing denied using Sri Lankan ports for military purposes.

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