China minister arrives as SL battles debt crisis

Colombo: Chinese Foreign Minister Wang Yi was in Sri Lanka on Sunday seeking to advance Beijing’s ambitious Belt and Road Initiative as the island nation tries to rescue itself from a foreign currency and debt crisis, partly due to infrastructure built with Chinese loans that don’t generate revenue. Wang arrived in Sri Lanka on Saturday from the Maldives on the last leg of a multi-city trip that also took him to Eritrea, Kenya and Comoros in Africa.

In Sri Lanka, Wang met with President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. Later, Wang and the prime minister were expected to speak at Colombo’s Port City, a reclaimed island developed with Chinese investment. The visit comes as Sri Lanka faces one of its worst economic crises, with foreign reserves down to around $1.6 billion, barely enough for a few weeks of imports. It also has foreign debt obligations exceeding $7 billion in 2022, including repayment of bonds worth $500 million in January and $1 billion in July. China loaned money to build a seaport and airport in the southern Hambantota district, in addition to a wide network of roads. But the projects have failed to make money.

Central Bank figures show that current Chinese loans to Sri Lanka total around $3.38 billion not including loans to state-owned businesses, which are accounted for separately.

“Technically we can claim we are bankrupt now,” said Muttukrishna Sarvananthan, principal researcher at the Point Pedro Institute of Development. “When you have foreign reserves in the red, that means you are technically bankrupt.” The situation has left households facing severe shortages. People wait in long lines to buy essential goods like milk powder, cooking gas and kerosene. Prices have increased sharply and the Central Bank says the inflation rate rose to 12.1% by the end of December from 9.9% in November. Food inflation increased to over 22% in the same period. —(AP)