Loaded with massive debts amounting to billions of dollars, and in order to overcome the financial crisis triggered by the COVID-19 contagion, Sri Lanka is looking for 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 nation, as it has already brought the COVID-19 issue under control, and borrowing might be quicker and given under favorable conditions’, an eminent economist who wished to remain anonymous told the Business Times.

To resurrect the economy and prevent the re-contagion of COVID-19, Sri Lanka urgently needs to seek China for technical assistance to contain the spread of the virus and receive 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 US$ 2.8 billion (balance of US$ 3.2billion) for loans and interest, followed by US$ 13.8 billion for debt service from 2021 to 2023, latest available official data showed.

The government has sought US$ 1.5 billion from China in a currency swap, as an IMF loan of about US$ 800 million under a new Rapid Credit Facility is still hanging in the balance, a top official connected to financial negotiations said.

It expects a balance of US$ 1 billion in this lending, of which US$ 500 million was already disbursed in March this year for budget support and to repay installments of loans falling due.

 Another US$ 800 million is expected soon, a senior official said, adding that the government seeks the additional Chinese credit to bridge the budget deficit.

The Finance Ministry is currently negotiating with the Industrial and Commercial Bank of China (London) PLC and three other foreign banks to raise at least US$ 500 million under a 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 USD 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 US$ 500 million to help Sri Lanka fight the coronavirus pandemic.

It will also borrow another US$ 80 million (Rs.15 billion) from the China Development Bank soon to improve 105 km of roads.

The government has signed a loan agreement seeking US$ 500 million from the same bank early this year.

Last year, Sri Lanka signed up  for US$ 2.4 billion of new project loans including a US$ 989 million loan from the Exim Bank of China for the Central Expressway.

Total disbursements on Chinese projects were US$ 68.4 million up to now excluding the US$ 500 million dollar budgetary support loan.

When considering the total of US$ 9.2 billion in Chinese development loans to Sri Lanka, 61 percent has been obtained on concessional terms, according to data available from the Department of External Resources.

Concessional terms on Chinese loans are typically fixed rates at 2 percent, with other fees of 0.5 percent and maturity periods of 15-20 years.

-With inputs from Business Times