Colombo: China is considering a USD 2.5 billion credit facility to Sri Lanka, Beijing’s top diplomat in Colombo said on Monday, as the island nation is reeling under an acute economic and energy crisis triggered due to a shortage of foreign exchange.

Chinese Ambassador Qi Zhenhong’s announcement came closely on the heels of last week’s announcement by India to extend a USD 1 billion line of credit to Sri Lanka as part of its financial assistance to help the country deal with the economic crisis.

India had extended a USD 500 million line of credit to Sri Lanka in February to help it purchase petroleum products.

Sri Lanka has asked for USD 2.5 billion that includes a USD 1.5 billion buyer’s credit. It (the request) is under consideration, Qi told reporters here.

Both the countries now have to discuss how the loan and buyer’s credit will be used, he added.

Buyer’s credit is a short-term loan to an importer by an overseas lender for the purchase of goods or services. An export finance agency guarantees the loan, mitigating the risk for the exporter. Buyer’s credit allows the buyer, or the importer, to borrow at rates lower than what would be available domestically.

Qi, however, did not give any direct answer to questions on whether China would be restructuring the debt owed by Sri Lanka.

During Chinese Foreign Minister Wang Yi’s visit to Sri Lanka in January, President Gotabaya Rajapaksa had requested Beijing for debt restructuring to help the country overcome the current economic woes.

Qi said China will not take advantage of Sri Lanka’s current situation and is always ready for help.

China has extended USD 2.8 billion financial assistance, including a currency swap of USD 1.5 billion, to Sri Lanka since the COVID-19 pandemic broke out in the country in 2020.

Chinese loans account for about 10 per cent of Sri Lanka’s external debt.

In addition to seeking India’s economic relief package, Sri Lanka is contemplating to draw an International Monetary Fund (IMF) facility.

The unprecedented forex crisis has triggered fuel crisis, power cuts and cooking gas shortages. Import restrictions aimed at saving foreign currency have caused a shortage of essentials.

According to police, a 29-year-old man was stabbed to death on Sunday following a quarrel over jumping the queue outside a petrol pump.

On Saturday, two 70-year-old men died due to exhaustion while waiting in serpentine queues outside petrol filling stations for over six hours in torrid heat.

Meanwhile, State-owned Ceylon Petroleum Corporation (CPC) said the first consignment of fuel under the Indian credit line was being unloaded on Monday. The 35,000 metric tonnes of diesel would ease the queues, energy minister Gamini Lokuge said.

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