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Sri Lanka asks China’s Wang Yi to restructure debt, aid industry through concessional trade schemes

Chinese Foreign Minister Wang Yi with Sri Lankan President Gotabaya Rajapaksa in Colombo (Photo: @GotabayaR/Twitter)

Sri Lankan President Gotabaya Rajapaksa has requested visiting Chinese Foreign Minister Wang Yi to restructure the debt repayment in a bid to salvage the foreign exchange and inflation crisis.

Wang is on a two-day visit to the Indian Ocean island nation to strengthen ties with a close ally with which its relations have turned sour over the last few months due to a fertiliser deal. The visit also comes at a time when Colombo is in the grip of a major downturn in its economy.

In a statement, the President's office said: "The President pointed out that it would be a great relief to the country if the attention could be paid on restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of the Covid-19 pandemic. The President also said that if a concessional trade credit scheme could be initiated for imports from China, it would enable the industries to operate smoothly".

The Sri Lankan president also sought a concessional trade credit scheme for imports from China to enable its industries to operate smoothly.

Rajapaksa also requested the Chinese foreign minister to assist in bringing Chinese tourists to Sri Lanka under the bio-bubble concept. In late 2021, Sri Lanka began opening up to foreign tourists who bring in a fairly large revenue to the country.

Wang also met with Sri Lankan Prime Minister Mahinda Rajapaksa. The Prime Minister tweeted: "Had a very pleasant meeting with the Foreign Min of China. Discussions centered around the logistics of facilitating the return of the many #lka med students to China. Also discussed were a host of issues inc Tourism, investments, #COVID19SL relief & post Covid preparedness".

The Rajapaksa family has come under severe criticism for leading the country into a financial quagmire. The President, Prime Minister, Finance Minister and the Minister for Youth and Sports are the prominent personalities from the same family, besides others who hold important government positions.

Sri Lanka faces an immediate crisis over the payment of a $500m international sovereign bond on 18 January. The government has assured the public that it will be able to tide over the crisis as it has allocated funds for it.

Sri Lanka is staring at a foreign exchange crisis as tourism collapsed due to the advent of the coronavirus in 2020. The resultant lockdowns also added to economic woes. Dwindling forex turned the push into a shove as the country reduced imports to essential foods and medicines. It also stopped the import of crude oil, leading to the shutting down of its sole refinery.

Food and fuel prices shot up as supplies dwindled causing much consternation among the public.

Experts say that part of the country's financial problems stem from the "debt trap" it has been led into by China's Belt and Road and Initiative (BRI). Colombo had to give its Hambantota port on lease for 99-years as it could not repay China for the infrastructure investment. Both Sri Lanka and China refute the debt trap theory.

As part of efforts to ward off its financial problems, Sri Lanka initiated a barter exchange of tea for oil with Iran.

It also warmed up to immediate neighbour India clearing the Trincomalee Oil Farm deal which had been hanging for decades. The country is also importing goods from India under the Line of Credit in a bid to improve its relations with the South Asian neighbour as well as boost confidence.

Wang is on a visit to Sri Lanka as the two nations celebrate 65 years of bilateral relations. China is also competing with India in the South Asian region in a bid to upstage the Asian democracy in its own backyard.

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