The president of crisis-hit Sri Lanka has asked China to restructure its debt repayments as part of efforts to help the South Asian country navigate its worsening financial situation.
Gotabaya Rajapaksa made the request during a meeting with Chinese foreign minister Wang Yi on Sunday.
In the last decade China has lent Sri Lanka over $5bn (£3.7bn) for projects including roads, an airport and ports.
But critics say the money was used for unnecessary schemes with low returns.
“The president pointed out that it would be a great relief to the country if attention could be paid on restructuring the debt repayments as a solution to the economic crisis that has arisen in the face of the Covid-19 pandemic,” Mr Rajapaksa’s office said.
The statement also stated that China was asked to provide “concessional” terms for its exports to Sri Lanka, which totaled around $3.5 billion last year, but no further details were provided.
Mr Rajapaksa has also offered to allow Chinese tourists to return to Sri Lanka if they follow strict coronavirus regulations.
Prior to the pandemic, China was one of Sri Lanka’s main tourist sources. It also imports the most goods from China than any other country.
Sri Lanka has been experiencing a severe debt and foreign exchange crisis in recent months, which has been exacerbated by the loss of tourist income during the pandemic.
After international financial markets, the Asian Development Bank, and Japan, China is Sri Lanka’s fourth largest lender.
Although China has provided billions of dollars in soft loans, the island nation has been engulfed in a foreign exchange crisis, which some analysts say has pushed it to the brink of default.
Sri Lanka must repay approximately $4.5 billion in debt this year, beginning with a $500 million international sovereign bond maturing on January 18.
The central bank of the country has repeatedly assured investors that all debt repayments will be met, and that funds for this month’s bond repayment have already been allocated.
Sri Lanka is an important component of China’s Belt and Road Initiative, a long-term plan to fund and construct infrastructure connecting China to the rest of the world.
However, some countries, including the United States, have labelled the project a “debt trap” for smaller and poorer countries.
Beijing has always denied those accusations, and in response, it has accused some in the West of promoting this narrative in order to smear its image.
Last month a Sri Lankan government minister said the country planned to settle a debt for past oil imports from Iran by paying it off in tea.
It plans to send $5m worth of tea to Iran each month to clear a $251m debt.
In September, Sri Lanka declared an economic emergency, after a steep fall in the value of its currency, the rupee, caused a spike in food prices.
Authorities said they would take control of the supply of basic food items, including rice and sugar, and set prices in an attempt to control rising inflation.