As part of measures to help the South Asian country manage its worsening financial predicament, Sri Lanka’s president has requested China to modify its loan obligations.
The proposal was made by Gotabaya Rajapaksa at a meeting with Chinese Foreign Minister Wang Yi on Sunday.
Over the last decade, China has lent Sri Lanka more than $5 billion (£3.7 billion) for infrastructure projects such as roads, airports, and ports.
However, opponents claim that the funds were spent on ineffective initiatives with little returns.
“The president stated that rescheduling loan repayments as a response to the economic situation that has developed in the face of the Covid-19 outbreak would be a big relief to the country,” according to Mr Rajapaksa’s office.
China was also urged to give “concessional” conditions for its exports to Sri Lanka, which totaled roughly $3.5 billion last year, according to the statement, but no additional specifics were provided.
Mr Rajapaksa further stated that Chinese visitors will be allowed to return to Sri Lanka if they followed rigorous coronavirus standards.
Sri Lanka’s largest supplier of visitors before the epidemic was China, and it imports more commodities from China than any other country.
Sri Lanka has been mired in a serious financial and foreign exchange crisis in recent months, exacerbated by the loss of tourist revenue during the outbreak.
After international financial markets, the Asian Development Bank, and Japan, China is Sri Lanka’s fourth largest lender.
China has provided the country with billions of dollars in soft loans, but the island nation has been engaged in a foreign exchange crisis, which some analysts believe has brought it to the brink of default.
Sri Lanka has $4.5 billion in debt to repay this year, beginning with a $500 million foreign sovereign bond that expires on January 18th.
The central bank of the country has informed investors that all of the government’s debt obligations would be made, and that money for this month’s bond repayment have already been allocated.
Sri Lanka is an important element of China’s Belt and Road Initiative, a long-term strategy to fund and construct infrastructure that connects China and the rest of the globe.
Some countries, notably the United States, have called the initiative a “debt trap” for smaller and poorer countries.
Beijing has long denied the charges, accusing individuals in the West of spreading the story in order to smear its image.
A Sri Lankan government minister indicated last month that the country planned to pay off a debt for past oil imports from Iran with tea.
It intends to ship $5 million in tea to Iran each month to pay off a $251 million debt.
Sri Lanka declared an economic emergency in September after a sharp drop in the value of its currency, the rupee, resulted in a rise in food costs.
Authorities said that they will seize control of vital food supplies, such as rice and sugar, and set prices in an effort to rein in growing inflation.