Sri Lanka in talks with China for another loan to cover earlier debts

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Sri Lanka’s government said on Tuesday it is discussing obtaining another loan from Beijing to repay some of its debt to Chinese banks after China told the nearly bankrupt island nation it was not in favor of restructuring the existing loans.

Sri Lanka has nearly $7 billion in foreign debt due for repayment this year and will need to repay $ 25 billion over the next five years.

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A severe shortage of foreign exchange means the country l acks money to buy imported goods, leading to shortages of food, fuel and other essentials. The economic crisis has brought weeks of protests across the country calling for President Gotabaya Rajapaksa’s resignation.

Government spokesman Nalaka Godahewa said Beijing was balking at restructuring Sri Lanka’s debt because it does not want to set that precedent. He told reporters the finance ministry will announce details of discussions with China later.

Earlier this month, the government said it was suspending repayment of foreign loans pending negotiations with the International Monetary Fund for a loan restructuring plan.

Sri Lanka’s debt problems are partly because it built infrastructure like a port, airport, and road networks using Chinese loans, but the projects are not making money.

Rajapaksa had asked Chinese Foreign Minister Wang Yi, who visited Sri Lanka in January, to restructure those loans.

Central Bank figures show existing Chinese loans to Sri Lanka total around $3.38 billion, not including loans to state-owned businesses, which are accounted for separately and thought to be substantial.

Read more: World Bank readies Sri Lanka aid package, IMF calls loan talks ‘fruitful’

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