China takes a back seat as many countries come forward to help crisis-hit Sri Lanka

Today, Sri Lanka is going through the worst economic crisis it has ever faced since it gained Independence from the British in 1948. The root cause of the crisis has been identified as lack of foreign remittances resulting in dwindling foreign reserves.

No matter where you go in the country, you can see mile-long queues of people waiting to purchase LP Gas, milk powder and fuel while they are experiencing frequent power cuts. It is predicted that the country could shortly face a severe food shortage as well.

The crisis is so severe that the government was compelled to implement a two-week work from home method from June 20 for state sector employees in the non-essential sector since there is no fuel to provide basic transport facilities to the public.

Meanwhile, the economic crisis has expanded into a social and political crisis almost destabilizing the country. The common citizens are up in arms against the legislators including President Gotabaya Rajapaksa. The protesters demand the resignation of the President over the crisis. The Cabinet headed by the Prime Minister has already been replaced.

In this need of the hour, Sri Lanka requested several countries to come forward and help soften the blow of the economic crisis. To these requests, India responded proactively and promptly. Had it not been for India, and the Credit Line it offered, fuel and other essentials would have been discontinued months ago.

The Government of India provided a USD 1 billion Credit Line for the purpose of importing essential goods from India, Ministry of Finance, Economic Stabilization and National Policies said. 

Sri Lanka is counting on more help from India until it secures an International Monetary Fund (IMF) programme that’s hoped would unlock aid from other lenders to help face the economic crisis.

Meanwhile, the US Government on June 21 announced a third tranche of new funding to address the immediate needs of people hit by the economic crisis in Sri Lanka.  This humanitarian assistance, totaling USD 5.75 million, will provide cash assistance, short-term jobs, and agriculture supplies such as seeds directly to crisis-affected people to meet their basic needs.

This assistance followed a phone conversation between US Secretary of State Antony Blinken and newly appointed Prime Minister Ranil Wickremesinghe, who is also the Finance Minister, to discuss Sri Lanka's current economic and political challenges on June 13.

Blinken has assured crisis-hit Sri Lanka of support to promote American investments in the country after the completion of IMF negotiations.

Many countries including Japan and Australia have provided financial assistance to Sri Lanka so far. However, China seems to have adopted a lackluster approach when it comes to providing help to Sri Lanka. China is one of the major partners of Sri Lanka and on whom the latter depended heavily for sourcing funds for key development projects.  To the dismay of many, China has not come forward to help Sri Lanka as expected.

Japan, the World Bank and the Asia Development Bank are other large lenders, having begun the process of aiding Sri Lanka's economy much earlier than China.

On April 12, Sri Lanka announced that it was suspending all foreign debt repayments as it had run out of foreign currency reserves and it will be restructuring all its external debts. In response, China said that it is not in favour of debt restructuring as it will have to do the same to other debtors.

Figures of Sri Lanka’s Central Bank show existing Chinese loans to Sri Lanka total around USD 3.38 billion, not including loans to state-owned businesses, which are counted separately and thought to be substantial.

However, China has not entirely abandoned Sri Lanka. It has on several occasions expressed optimism to help Sri Lanka to overcome the crisis and offered aid as well.

In early June China’s Foreign Ministry Spokesperson Zhao Lijian said that China is ready to work with relevant countries and international financial institutions to continue to play a positive role in supporting Sri Lanka’s response to current difficulties and efforts to ease debt burden and realise sustainable development. 

Early May, China provided 300 million RMB of aid to Sri Lanka for the urgently needed drugs, food and fuels etc., which increases the total emergency grant from China to 500 million RMB (approximately 76 million USD).

On June 21, the Sri Lankan Government said it was having discussions to obtain another loan from China to repay some of its debt to Chinese banks after China told Sri Lanka it was not in favor of restructuring existing loans.

Sri Lanka has nearly USD 7 billion in foreign debt due for repayment this year and will need to repay USD 25 billion over the next five years. A severe shortage of foreign exchange means the country lacks money to buy imported goods, leading to shortages of food, fuel and other essentials.

Dr. Nalaka Godahewa, a Government MP of Sri Lanka said China was unwilling to restructure Sri Lanka’s debt because it does not want to set that precedent to other countries that have obtained loans from China.