Crisis-hit Sri Lanka looks to China for help, but will it step in?
- Colombo has asked for US$1 billion loan to meet repayments and a US$1.5 billion credit line to buy Chinese goods
- Analysts say Beijing is likely to be cautious but will face pressure to be part of international assistance
The crisis in Sri Lanka is deepening, with mass protests calling for the resignation of President Gotabaya Rajapaksa. Sri Lanka on Tuesday said it would default on its external debt pending a bailout from the International Monetary Fund – the first time the South Asian nation has announced a debt default since its independence in 1948.
On Wednesday, Sri Lankan Finance Minister Ali Sabry met China’s ambassador to Colombo, Qi Zhenhong, to discuss the nation’s economic situation. Qi said China would always support Sri Lanka in “trying times”, according to a Chinese embassy tweet.
Sri Lanka has asked China for help – including a US$1 billion loan to meet repayments on existing Chinese lending and a US$1.5 billion credit line to buy Chinese goods – but so far Beijing has not indicated whether it will provide financial help.
Ganeshan Wignaraja, a senior fellow at the National University of Singapore, said Beijing was likely to be reluctant to step in.
“China doesn’t want to lose money,” he said. “If China gives Sri Lanka a special bailout, other countries in the Belt and Road Initiative that are in similar difficulties will ask for the same type of assistance.”
But Colombo’s decision to suspend payments on its external debts will put pressure on Beijing to be part of the international assistance to Sri Lanka, Wignaraja said.
In addition to talks with China, Sri Lanka is sending a high-level delegation, including its central bank governor, to an IMF meeting in Washington next week, with the two sides expected to discuss possible debt restructuring and a bailout on the sidelines of those talks.
Sri Lanka’s high commissioner to India Milinda Moragoda also met Indian Finance Minister Nirmala Sitharaman on Wednesday, seeking India’s help to build up international support for bridge financing.
Sri Lanka has secured about US$2.5 billion of financial aid from India so far, including a US$500 million credit line in February for buying fuel and another US$1 billion credit last month for food or other necessities.
Lin Minwang, a professor of South Asian studies at Fudan University in Shanghai, said the Covid-19 pandemic and its impact on economic growth had caused China to be “more cautious” about lending and financing belt and road projects.
“[Beijing also] does not want to give the international community a pretext to accuse China of taking advantage of debt opportunities,” he said. “If China was doing it for geopolitical expansion, it would obviously provide stronger support than India – but you can see that India is at the forefront.”
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Wignaraja at the NUS said helping Sri Lanka would be a way to address the debt-trap accusations. “Otherwise the label will stick,” he said. “If China behaves like a bank, it will make this debt problem much worse than the debt trap and it will actually become a Chinese problem.”
He also said China should look at a country’s “debt situation” when it extends loans. “It must not over-give money on commercial interest rates so that countries have the risk of a debt trap like Sri Lanka now has fallen [into]. So China has a moral, and a legal and developmental obligation.”
Additional reporting by Amber Wang
