Sri Lanka and the Maldives, two of China’s close developmental partners in South Asia, have sought debt restructuring when  Chinese Foreign Minister Wang Yi concluded his five-nation tour that included the two South Asia countries. However, Beijing is yet to respond to these requests. 

The request came at a time when Sri Lanka is going through an economic meltdown, as the country’s foreign exchange reserves touched a historic low of $1.5 billion in November last year. The government is struggling to import essentials like fuel and food, with people standing in long queues across cities for basic stuff. 

Sri Lanka owes China around $5 billion in debt, roughly 10 percent of its total external debt. There is an increasing risk of Sri Lanka defaulting on its external debt obligation this year—Fitch Ratings, which had recently downgraded its sovereign ratings to “CCC”, has expressed doubt over the country’s ability to service its debt. 

On Sunday, during his meeting with Wang Yi, Sri Lankan President Gotabaya Rajapaksa was very specific in his demands. He clearly stated the debt “restructuring” would be a “great relief”. 

“The President pointed out that it would be a great relief to the country if the 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,” the President’s media division said in a statement. 

As an important part of its flagship Belt and Road initiative, China extended several loans to Sri Lanka for the development projects, often at unfavorable terms to financially unviable projects. The pandemic only fastened the pace of the inevitable economic crisis that, otherwise, would have taken a bit more time to reach the point where it is today. 

The Maldives has a similar story but it managed to avoid a disaster like Sri Lanka, as it had good terms with India, which extended generous timely assistance.

Male too had received huge loans, mostly during the previous administration of China-leaning former president Abdullah Yameen. In total it owes $1.4 billion—big for a small country with a total GDP size of roughly $5 billion. 

Last week, Wang Yi also visited the Maldives—his first trip to the archipelago since President Ibrahim Mohemmed Solih, who openly opted for the “India First Policy”, came in office in 2019. Both countries signed five agreements in the fields of health, travel, and infrastructure. 

However, if one looks at the occasion, the year 2022, which is the golden jubilee of the diplomatic relations of China and the Maldives, there could have been real substantial agreements to celebrate the occasion, especially when Solih called China “one of its most important partners in socio-economic development.”

Solih also requested Wang Yi to “restructure” the debt. A tourism reliant economy, the Maldives is still in its recovery phase. And, a relief in the debt will surely help ease that recovery phase.  

For Sri Lanka, time is running out. Colombo is scrambling for financial assistance, including one from India in the form of lines of credit and loans. New Delhi, one of its most important partners, is yet to announce the package. 

However, there are visible signs to indicate that both New Delhi and Colombo are moving beyond the recently strained relationship. And, it will be interesting to see how the Chinese come to Sri Lanka’s rescue when the latter also seeks a balance in its ties with two of its closest patterns.  

(SAM)