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After India's $1 bn credit line, China considering Colombo’s request for $2.5 bn assistance in economic crisis

In the last few days, at least three people have reportedly died while standing in these long queues due to exhaustion; another man was killed after a brawl over fuel, according to a report by Daily Mirror

Mar 21, 2022
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Sri Lanka economy crisis

Faced with an unprecedented economic crisis, the Sri Lankan government has sought $2.5 billion in economic assistance from China, a request Beijing is considering, confirmed Chinese Ambassador to Sri Lanka Qi Zhenhong. The development came days after New Delhi extended a $1 billion credit line to Colombo. [Read More]

Sri Lanka’s economic crisis, primarily caused by the foreign exchange crisis, has reached a new level in recent days as the island country faces a severe shortage of fuel, food, and power. Across the nation, scenes of people standing in long queues for fuel and essentials have become a common sight.

In the last few days, at least three people have reportedly died while standing in these long queues due to exhaustion; another man was killed after a brawl over fuel, according to a report by Daily Mirror.      

Since January this year, India extended assistance worth around $2.4 billion—$500 million for fuel import; $400 million in currency swap; $500 million in loan deferment; and another $1 billion line of credit.

The response from China came days after Sri Lankan Finance Minister Basil Rajapaksa returned from a visit to New Delhi. Both countries agreed on mid and long economic cooperation to overcome the ongoing economic crisis. [Read More]

Beijing is now considering providing $1 billion in loans and another $1,5 billion in buyers' credit.

Earlier this year in January, when Chinese Foreign Minister Wang Yi visited Colombo, Sri Lankan President Gotabaya Rajapaksa had sought loan restructuring for the debt it had taken for China. This year, amid record low forex, Sri Lanka is due to repaying almost $7 billion of its external debt.

The pandemic and the subsequent lockdowns in Sri Lanka disrupted the country’s economy to a great extent. Its tourism industry, earlier bringing in around $4 billion annually, is yet to recover from the pandemic shock.

The record-high prices of commodities and fuel in the global market further accelerated the depletion of its foreign exchange reserves, fueling the risk of the country defaulting on its loan obligation.

[SAM]

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