China proposes debt refinancing to Sri Lanka facing bankruptcy crisis

Published 27 Apr.2022 07:28(KST)

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The Sri Lankan government announced on the 26th (local time) that China, the 'largest creditor' to Sri Lanka, which is experiencing the worst economic crisis, has proposed debt refinancing. Nakara Godahewa, spokesperson for the Sri Lankan cabinet, said on the same day that China proposed debt refinancing to Sri Lanka and that discussions on the matter have begun.

He explained, "Since the International Monetary Fund (IMF) is cooperating with Sri Lanka, other countries are also showing willingness to support our country," adding, "We have already secured commitments from the World Bank (WB) and other institutions." He further noted, "Discussions with China are still in the early stages."

Earlier, Ali Sabry, Sri Lanka's Finance Minister, visited the United States last week and met with the IMF, WB, and others to explain Sri Lanka's financial situation, which has made it difficult to repay part of its $51 billion external debt, and to discuss support measures.

The Sri Lankan economy has been hit by tax cuts under the COVID-19 pandemic and a populist government. As foreign exchange reserves dwindled and shortages of fuel, food, and medicine occurred, sporadic violent protests broke out, causing internal turmoil.

Sri Lanka has received a $3.5 billion loan from China, which is one of its largest creditors. Gotabaya Rajapaksa, the Sri Lankan president who faced pressure to resign, met with Wang Yi, China's Foreign Minister, in January to request debt repayment restructuring with China.