By Uditha Jayasinghe

COLOMBO, (Reuters) – China may offer Sri Lanka a credit facility of $1.5 billion. A top Chinese official stated Monday that the decision was expected to be made soon as part aid to the country in its worst economic crisis for decades.

Qi Zhenhong, the Chinese ambassador to Sri Lanka, told reporters that the sides are also talking about a loan up to $1Billion which was requested by the Sri Lankan government.

He said that the China Development Bank offered the South Asian country a loan in the amount of $500 million on March 18th.

Sri Lanka must repay approximately $4 billion of its debts this year. This includes an international sovereign bond worth $1 billion due in July. However, its reserve fell to $2.31 Billion as of February. This is a drop of around 70% compared with two years ago.

In addition to struggling to pay for imports of basic goods such as medicines and fuel, the country also faces difficulties enforcing power outages nationwide due to fuel shortages.

Qi stated that while we believe solving the problem is our ultimate goal, there are many ways of doing so. He was responding to questions about restructuring the Chinese loans.

China is Sri Lanka’s fourth largest lender after Japan, Asian Development Bank, and international financial markets.

China has loaned Sri Lanka $5 billion over the past decade to construct highways, ports and an airport. However, critics claim the funds were used on white elephant projects that have low returns. China denied this.

When President Gotabaya Rajapaksa met with Wang Yi, the Chinese Foreign Minister Wang Yi asked China for assistance in restructuring debt repayments. China has yet to reply to this request.

A source in the Finance Ministry told Reuters that China is due to pay around $400-$500 millions.

Rajapaksa indicated last week that Sri Lanka will partner with the International Monetary Fund for the solution to the country’s current economic crisis. The official talks are scheduled to commence in April.

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.