In a meeting with Sri Lankan President Gotabaya Rajapaksa in Colombo, visiting Minister of Foreign Affairs for China Wang Yi spoke highly of the relations between the two countries and the media reported the bonhomie between the two. The President also expressed his gratitude towards China for providing Sinopharm vaccines to the island country. (https://ceylontoday.lk/news/chinese-fm-wang-yi-arrives-on-two-day-visit)

But there were more important issues discussed, and Rajapaksa made it a point to stress one on debt. “The president pointed out that it would be a great relief if debt payments could be rescheduled in view of the economic crisis following the pandemic,” his office said in a statement on Sunday. In fact, this was probably the most important part which Wang came to discuss. (https://www.theguardian.com/world/2022/jan/10/sri-lanka-appeals-to-china-to-ease-debt-burden-amid-economic-crisis)

After tough two years due to the pandemic, Sri Lanka tourism, industry and domestic consumption has not yet picked. The debt crisis is so deep that the country has been warned of defaulting by investment banks and rating agencies. With foreign reserves at historical lows, Sri Lanka has been looking up to China for some support.
Sri Lanka’s schedule for repayment of loans with China is fast approaching, hence the panic button.

Just four years back, it had to lease a large part of the port area to China for 99 years after it was unable to repay a loan running into almost $1.5 billion. Unable to repay a $1.4bn loan for port construction in southern Sri Lanka, Colombo was forced to lease the facility to a Chinese company for 99 years in 2017. (https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html)

Sri Lanka is part of China’s Belt and Road Initiative (BRI) and has also received loans from Beijing under the program. China has been non-committal on debt restructuring. (https://island.lk/china-dismisses-wijeyadasas-concerns-and-pushes-for-fta/)

According to figures compiled by international agencies, China is one of the largest single creditor nations in the world, especially for lower and middle-income countries. It lent an estimated $170bn so far. China has often been accused of trapping countries like Sri Lanka in a debt cycle. (https://ceylontoday.lk/news/is-china-luring-poor-countries-into-debt)


Read more:

The economic crisis facing Sri Lanka:
https://island.lk/sri-lanka-has-no-room-to-manoeuvre-a-pathfinder-perspective/

China in Sri Lanka and Maldives:
https://dri.thediplomat.com/newsletter/2022-01-03/