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Sri Lanka, China free trade agreement negotiations at a standstill

The Print - 19 July 2022

Sri Lanka, China free trade agreement negotiations at a standstill

A senior government spokesperson of Sri Lanka said that there has been no positive response from China for the proposed debt restructuring programme despite taking steps to hasten the free trade agreement (FTA).

“China is still trying to provide refinancing facilities equal to another billion dollars for the maturing China Development Bank loan. But Sri Lanka has refused to receive the refinancing facility because all debtors are treated equally under the debt restructuring programme,” the spokesman said on Monday as quoted by Ceylon Today.

The country has also not responded to Sri Lanka’s call for removing the conditions of the USD 1.5 billion swap facility that China provided to the island nation.

It was a prerequisite to maintain foreign reserves for a minimum of three months of imports for the implementation of the swap facility, however, the foreign reserves of Sri Lanka have dropped to negligible levels.

The island nation called for the resumption of the FTA negotiations between the two countries.

Earlier, in January, China’s Foreign Minister Wang Yi visited the country and encouraged the resumption of these negotiations, local media reported.

“The sticking point is that China had been insisting that Sri Lanka relax its duties on a wider range of Chinese goods immediately. Given the comparative size of the two economies, this is unrealistic,” the spokesman added.

Amid the ongoing political and economic crisis, the island nation has been seeking foreign exchange and it needs access to China’s market on easy terms.

The Sri Lankan academy in China said that the FTAs with china have been doing well in the country’s market adding that China is awash with cherries from Chile, mangosteens from Thailand, durians from Thailand, prawns from Equador, milk from New Zealand, the local media reported.

Sri Lanka has achieved economic growth through external borrowings for a very long time, and China has been one of the major creditors to the country.

China’s model of economic development adopted for Sri Lanka included a handful of Chinese companies investing in specific projects along with higher interest rates and agreements to govern such investments.

The recent economic crisis in Sri Lanka shows that China’s lending loans are based less on economic viability and more on giving China a strategic advantage.

Hambantota port, located around 250 km from Colombo was built with high-interest Chinese loans. The Sri Lankan government struggled to repay the debt they had taken from China following which the port was handed over to the Chinese on a 99-year lease. With little trade flowing through Hambantota, China can use that for their military purpose, according to The Hill.

This is a tragic fall for a country that has ranked the highest in its region in human development indices and, until recently, had a higher GDP per capita (USD 3,850) than India, Pakistan or Bangladesh. Even in 2019, Sri Lanka had USD 7.5 billion in foreign exchange reserves. But expensive and unproductive infrastructure projects have become a major factor in the country’s economic decline. (ANI)

 source: The Print