By Uditha Jayasinghe

COLOMBO (Reuters – Sri Lanka’s President Gotabaya Rajapaksa has asked China for assistance to restructure its debt repayments in an effort to save the South Asian nation from a worsening economic crisis. This was stated by his office on Sunday.

Rajapaksa asked for the permission during Sunday’s meeting in Colombo with Wang Yi, Chinese Foreign Minister.

Although Sri Lanka was able to borrow billions from China in soft loans, analysts say the country is in the midst a crisis that could force it into default.

Rajapaksa said that the president had pointed out the need to provide relief from the nation by focusing on the restructuring of debt repayments to address the current economic crisis caused by the COVID-19 pandemic.

China ranks fourth in Sri Lanka’s list of largest lenders, after Japan and Asian Development Bank (ADB).

China has loaned Sri Lanka $5 billion over the past decade for roads, ports and an airport. Critics claim that the funds were spent on white elephant projects, with very low returns. China denies this.

Rajapaksa requested that China provide concessional terms for Sri Lanka’s exports. These were estimated to be approximately $3.5 billion by 2020. However, this statement did not offer more detail. Rajapaksa proposed that Chinese tourists can return to Sri Lanka only if they comply with strict COVID requirements, which include staying in preapproved hotels and only visiting specific tourist attractions.

China used to be Sri Lanka’s major source of tourist income before the Pandemic. Today, Sri Lanka imports more goods than ever from China.

Sri Lanka plays a central role in China’s Belt and Road Initiative. This long-term plan is to build and fund infrastructure that links China with the rest. The United States, however, has labeled it as a debt trap for smaller nations.

Sri Lanka will have to pay $4.5 Billion in total debt by the end of this year. The first is a 500 million International Sovereign Bond, (ISB), which was issued Jan. 18.

An $1.5 billion exchange with China enabled the island to boost its reserves up to $3.1 million at December’s end.

According to a source in Sri Lankan finance ministry, debt repayments to China for 2022 are likely to be less than their ISB commitments worth $1.54 billion at around $400 million to $500 million.

Sri Lanka’s central banks have repeatedly stated that they will meet all outstanding debts and indicated funds are already available for the January ISB.