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Business News/ News / World/  Sri Lanka downgraded as it eyes loan from China to service debt
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Sri Lanka downgraded as it eyes loan from China to service debt

China’s loans to Sri Lanka have often been a contentious topic over the past decade

Chinese Foreign Minister Wang Yi, left, poses for media before his meeting with Sri Lankan Prime Minister Mahinda Rajapaksa in Colombo, Sri Lanka. (AP)Premium
Chinese Foreign Minister Wang Yi, left, poses for media before his meeting with Sri Lankan Prime Minister Mahinda Rajapaksa in Colombo, Sri Lanka. (AP)

Sri Lanka sees the possibility of fresh lending by China to help meet its debt servicing obligations, central bank governor Ajith Nivard Cabraal said, as it faces looming maturities and a brewing balance of payments crisis.  

“There’s maybe a possibility of a new loan from China to cushion our debt repayments," Cabraal told reporters in Colombo without elaborating. “We have an understanding that they would assist us," he said.

China’s loans to Sri Lanka have often been a contentious topic over the past decade, with concerns that the country could struggle to repay and be used by Beijing to counter India and U.S. influence in the Indo-Pacific region. Sri Lanka had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data. 

The possibility of a new loan comes after President Gotabaya Rajapaksa asked Chinese Foreign Minister Wang Yi last weekend for Beijing to consider restructuring debt repayments. Delays in securing fresh funds -- key to meeting loan obligations -- have been cited by Fitch Ratings and Moody’s Investors Service as reasons for cutting Sri Lanka’s credit score deeper into junk and raising the specter of default.

Cabraal told Bloomberg News earlier this week that Sri Lanka won’t need to roll over $1.5 billion of sovereign debt due this year as he’s certain efforts to secure funds will materialize.

He said on Wednesday that a $1 billion credit facility for imports from India was “at reasonable level of advanced negotiations" and will help spur bilateral trade and ease debt servicing too. 

Cabraal expects the local economy to expand by 5.5% this year and said that GDP likely grew around 4.5% to 5% in 2021 despite challenges of the pandemic. The intention is to keep the economy growing while reducing exposure to sovereign bonds and restructuring debt without inflicting pain on investors, he added. 

The government has been reaching out for bilateral funding as Sri Lanka’s finances have nosedived since the pandemic, with its key foreign exchange earners of tourism and remittances hit. The country maintains a deep-seated reluctance to seek help from the International Monetary Fund as that would involve austerity measures.

 

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This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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Published: 13 Jan 2022, 07:06 AM IST
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