China and India step in to rescue Sri Lanka from crisis

China has softened its stance on massive debt restoring of Sri Lanka stating that it stands ready to play a constructive role in its steady economic and social development in the wake of India’s attitude of helping its neighbour, political analysts said.

China has avoided joining the London Club of government lenders, the forum for negotiating debt cuts.

Now instead of restructuring, China has offered a US$ 1 billion loan to repay loans already taken from it, plus US$ 1.5 billion as credit for buying goods from China.

China turned a sort of blind eye for what Sri Lanka urgently needed while being a close ally of Sri Lanka for decades, they said, adding that the Chinese response to repayment and revamping of debts was far from satisfactory.
Given the current crisis situation,

Sri Lanka now increasingly depends on its northern neighbour India for basic stuff like fuel, medicine, and food items.

India has already extended credit lines and currency swaps worth over $3 billion to Sri Lanka in order to help it come out of this economic mess. New Delhi also continues to defer seeking repayment of at least $2 billion in dues owed through the Asian Clearing Union.

The outpouring of support for Sri Lanka among common Indians is apart from the economic assistance by Government of India which has been to the tune of around US$ 3.5 billion since January this year.

An Indian ship with urgent relief supplies like rice, medicines and milk powder for the people of crisis-hit Sri Lanka, worth more than SLR 2 billion, reached Colombo on Sunday 22.

Sri Lanka owes $7 billion this year to Chinese banks and other lenders but suspended payment April 13 while it talks with the IMF. The government also owes $25 billion, or about half its total, to private sector bond investors.

China fully relates to the difficulties and challenges facing Sri Lanka and stands ready to play a constructive role in its steady economic and social development,” Chinese Foreign Ministry Spokesperson, Mr. Wang Wenbin said at a media briefing recently

. He also stated that China is prepared to work with relevant counties and international financial institutions and to continue to play a positive role in easing Sri Lanka’s debt burden and helping the island nation to achieve sustainable development.

Mr Wang Wenbin expressed the belief that Sri Lanka will work in the same direction and make independent efforts to uphold the legitimate rights and interests of foreign investment and financing partners and maintain stability and credibility of its investment and financing environment.

In a written response to questions, the Chinese foreign ministry said Beijing is ready to “play a positive role in easing Sri Lanka’s debt burden” but gave no indication whether the amount owed might be reduced.

“China is willing to support relevant financial institutions to negotiate with Sri Lanka,” the ministry said.

If China gives a concession to Sri Lanka, it will have to give the same concession to other borrowers,” said economist W.A. Wijewardena, a former deputy governor of the Sri Lankan central bank. “They didn’t want to get into that trouble.”

China ranks third among Sri Lanka’s creditors after Japan and the ADB and accounts for 10% of the debt, he pointed out.

Sri Lanka has been facing a severe economic crisis since the beginning of 2021 and was trying to cushion the effect of the financial instability by seeking help from almost all friendly countries.

Sri Lanka sought the intervention of the good offices of the political hierarchy of Bangladesh and Pakistan, apart from India, for much-needed assistance.


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