SL seeks more budgetary support from China
Loaded with massive debt of billions of rupees, and in order to overcome the financial crisis triggered by COVID-19, Sri Lanka is seeking more budgetary support from China using its strategic ties, highly placed official sources said.
“Beijing is now in a better position to help the island, as it has already brought the COVID-19 issue under control, and the borrowing might be quicker and under favourable conditions,” an eminent economist who wished to remain anonymous told the Business Times.
To resurrect the economy and prevent the recurrence of COVID-19, Sri Lanka urgently needs to seek China for technical assistance to contain the spread of the virus and necessary funds to tackle the economic recession forecasted in the coming months, he said.
In the remaining months of this year, the government will have to pay around U$2.8 billion (balance of $3.2 billion) for loans and interest, followed by $13.8 billion for debt service from 2021 to 2023, latest available official data showed.
The government has sought $1.5 billion from China in a currency swap, as an IMF loan of about $800 million under a new Rapid Credit Facility still hangs in the balance, a senior official connected to financial negotiations told the Business Times.
It expects a balance of $1 billion in this lending, of which already $500 million was disbursed in March this year for budget support and to repay installments of loans falling due.
Another $800 million is expected soon, the official said adding that the government seeks the additional Chinese credit to bridge the budget deficit.
The ministry is currently negotiating with Industrial and Commerce Bank of China (London) PLC and three other foreign banks to raise at least $500 million under Foreign Currency Term Financing Facility (FTFF).
The Government reserves the right to select or reject any of their proposals without giving reasons, he said.
The FTFF is expected to be raised at a fixed rate or a floating rate, linked to the $ 6 Month LIBOR or its successor with a maturity period of one year or more.
The proceeds of the FTFF will be used for the purposes of financing the expenditure as approved in the Vote on Account (VoA) for the fiscal year 2020.
So far, China has provided an “urgent” loan of $500 million to help Sri Lanka fight the coronavirus.
It will borrow another $80 million (Rs. 15 billion) from the China Development Bank soon, to improve 105 km of roads.
The government signed a loan agreement seeking $500 million from the same bank early this year.