Oct 18, Colombo: Sri Lanka says the country is facing one of the worst financial crisis ever since a big part of the island nation's revenue is spent on servicing the excessive Chinese loans with high interest rates borrowed by the previous regime of Mahinda Rajapaksa.
"Chinese loans are a big part of our problem. A bulk of the government expenditure goes into servicing them," Finance Minister Ravi Karunanayake told the South China Morning Post (SCMP) in an exclusive interview.
The Minister urged China to put their disputes behind them and help the country through one of its worst financial crises ever by adjusting the rates of the loans.
"I urge China to put the acrimony of the past behind us and come and help us by adjusting the terms of the loans to make them more viable. We are serious about putting our relationship on the right path and mending the pathetic finances we have inherited from a corrupt regime," Karunanayake said.
Relations between the two countries have been strained since Rajapaksa was defeated in January and the new government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe has suspended several Chinese mega infrastructure projects including US$ 1.4 billion Colombo Port City Project alleging corruption.
Beijing this month rushed a special envoy, Vice-Minister of Foreign Affairs Liu Zhenmin, to engage with the government to bring the bilateral relations to a higher level.
During meetings with the Sri Lankan government leaders, the envoy pledged China's support and cooperation for further strengthening the friendly relations between the two countries.
Nearly 70 per cent of the mega infrastructure projects in the country in the last six years have been funded by China and built by Chinese companies. However, the Chinese-built infrastructure facilities including the harbor and the international airport in Hambanthota, Rajapaksa's home district, are sitting idly and not generating sufficient revenues to payback the money borrowed from China for their construction.
With foreign debt shooting up since China started pouring concrete and money into Sri Lanka, economists now say the country is heading into a debt crisis.
"In 2010, foreign debt was 36 percent of the GDP (gross domestic product). By the end of 2013, it was about 65 per cent, and is estimated to rise to 94 per cent this year," said Palitha Ekanayake, a former director-general at the ministry of rural economy. "Debt instalment and interest obligations already exceed government revenue. That means we have to borrow to square existing loans."
The Finance Minister, who will be presenting the 2016 budget later this month, is looking for foreign direct investment (FDI) to overcome the financial crisis as the revenues are slowing and the fiscal deficit widening.
"The focal point of our coming budget will be FDI. We need foreign participation and we will give very specific incentives to encourage FDI. It's a good opportunity for Chinese companies to invest here," Karunanayake told the SCMP.
China, however, has made it clear that it first wants to see an end to the impasse over its existing projects, especially the Colombo Port City project, before making fresh commitments.
Asked what Sri Lanka is doing to address Chinese concerns over its investments, the minister said: "We did not create the problem, we inherited it. But it has to be fixed all the same. Any country would want FDI. But in accordance with the laws of the land."