July 16 (Bloomberg) – Sri Lanka is continuing negotiations with China for as much as $4 billion in aid and is confident Beijing will agree “at some point,” according to a top envoy.
Colombo is asking China for a loan of $1 billion to repay an equivalent amount of Chinese debt coming due this year, Palitha Kohona, Sri Lanka’s ambassador to China, said in an interview to Bloomberg Television Friday. It is also seeking a $1.5 billion credit line to pay for Chinese imports and activation of a $1.5 billion swap, he added.
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“We are confident that at some point the Chinese system will agree to our requests because these are not unreasonable requests,” Kohona said. “We have made similar requests to other creditors. Sri Lanka needs the funding to bring stability to our financial system and we are confident that the Chinese will come to the party sooner than later.”
The bankrupt South Asian country has received about $3.8 billion in aid from neighbor India, and is negotiating for more. The cash is needed to pay for food and fuel purchases, with severe shortages seen stoking inflation to 70%, triggering violent public protests and forcing President Gotabaya Rajapaksa to flee the nation and resign.
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Sri Lanka’s federal government has about $12.6 billion in outstanding bonds owed to global funds; all repayments are frozen and defaults have been recorded. It owes roughly an equivalent amount to bilateral creditors and multilateral lenders.
Some 10% of Sri Lanka’s external debt is owed to China, Kohona said. Acting President Ranil Wickremesinghe had told Bloomberg News earlier that Japan is owed roughly an equal share but the interest rates on Chinese loans are higher. Wickremesinghe is seeking a bailout from the International Monetary Fund.
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India has urged the IMF to treat all of Sri Lanka’s creditors on par. China is concerned about potential delays in repayments if the agreed $1.5 billion swap is included in IMF talks, Sri Lankan authorities have said. Kohona declined to say if China will permit Sri Lanka to tap the swap but said this line won’t be included in IMF talks.
Kohona on Friday said Sri Lanka’s relationship with “close, vital neighbor” India isn’t dependent on the island’s “warm, proximate” relationship with China. He added that China-Sri Lanka relations will survive the departure of Rajapaksa, who was seen as close to Beijing.
“The president has gone, but in coming weeks we will decide on a successor,” Kohona said. “What we went through was a popular uprising, a popular expression of disenchantment. The people have expressed themselves.”
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