Sri Lanka is once again turning to China for a fresh injection of cash, which will come during the year as it prepares for a crippling debt repayment cycle, began in 2019.
With that new infusion, the US$5 billion received so far as Chinese loans will push the country deeper into Beijing’s grasp. 15 per cent of Sri Lanka’s foreign debt is from China emerging as a large creditor in the country providing much-needed funds for the development, Finance Ministry sources revealed.
A senior Treasury official said that 61.5 per cent of the Chinese loans are concessional ones at a much lower interest rate than the international market rates. “The Chinese commercial loans have been negotiated at a suitable rate by the two sides in accordance with the international market rates,” he added.
China has been offering loans for very low rates, such as 1 per cent or even 0.5 per cent interest but economic analysts claimed that long term borrowing from China at interest rates ranging from 2-3 per cent under strict conditions laid down by Chinese lending institutions was the only option available to the government.
The country has also obtained concessionary loans at an interest rate of London Interbank offered Rate (LIBOR) plus basis points, which is negotiable to 12-15 years as terms, and 2-5 years grace period. The Export-Import Bank of China has agreed to provide a loan of $989 million to Sri Lanka covering 85 per cent of the contract price of $1.16 billion for Central Expressway Project – Section 1, the ministry official said adding that the loan is the single largest loan approved by the bank.
Negotiations are underway with the Bank of China to obtain a $300 million loan as the country’s efforts to strengthen the capital account in the face of attracting FDIs and increasing exports which are under severe stress.
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