China confirms offer to Sri Lanka of debt moratorium

China’s government on Friday confirmed it is offering Sri Lanka a two-year moratorium on loan repayments as the Indian Ocean island nation struggles to restructure $51 billion in foreign debt that pushed it into a financial crisis.

China lent to Sri Lanka as part of Beijing’s multibillion-dollar Belt and Road Initiative to increase trade by building ports and other infrastructure across Asia and Africa. The International Monetary Fund offered a $2.9 billion emergency loan but wants other creditors to cut debts, which Beijing had resisted, possibly for fear other borrowers would want the same relief.

China presented a plan to “provide an extension on debt service due in 2022 and 2023,” said a foreign ministry spokeswoman, Mao Ning. “During that period, Sri Lanka would not have to pay the principal and interest due on bank loans.”

China is Sri Lanka’s third-biggest creditor after Japan and the Asian Development Bank, accounting for about 10% of its debt. But its lack of agreement blocked a final settlement.

Sri Lanka used Chinese loans to build an airport and other projects that failed to pay for themselves.

India, which China sees as a strategic rival, announced last month it gave the IMF assurances to facilitate a bailout plan. India has given Sri Lanka $4.4 billion in emergency credit.

Sri Lanka ran out of foreign currency last April, leading to food shortages, power cuts and protests that forced a prime minister to resign and a president to flee the country. Debt repayment to China, Japan and other foreign lenders was suspended.

The island’s government is cutting spending and says it will cut the size of its 200,000-member military by almost half by 2030.  MDT/AP