Reeling under heavy Chinese loans obtained by former President Mahinda Rajapaksa, the new Sri Lankan government has called on China to adjust the "exorbitant" terms of the loans as it expressed readiness to mend fences with Beijing.
"Chinese loans are a big part of our problem. A bulk of the government expenditure goes into servicing them. 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," said Sri Lanka's Finance Minister Ravi Karunanayake.
"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 in an interview to the Hong Kong-based South China Morning Post yesterday.
Nearly 70 per cent of the infrastructure projects in Sri Lanka have been funded by China and built by Chinese companies in the last six years.
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, the report said.
"In 2010, foreign debt was 36 per cent of the GDP. 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," he said.
With the exchequer creaking and the fiscal deficit widening, Karunanayake will present one of the most difficult budgets in Sri Lanka's history next month, it said.
Foreign reserves have fallen from USD 9.1 billion in August last year to USD 6.8 billion by the end of September this year.
To beef up reserves, he has urged citizens holding Swiss bank accounts to move their money to Sri Lanka, promising there would be "no questions asked".
Soon after the defeat of Rajapaksa in the Presidential polls this year, Sri Lankan Foreign Minister Mangala Samaraweera said during Rajaksa's regime, from November 2005 to January 2015, Chinese loans obtained by Colombo for various projects amounted to USD five billion.
Karunanayke said the loans were obtained at "exorbitant" interest rates and the government wants to renegotiate them.
After the Sirisena took over relations between Sri Lanka and China underwent a significant change with the new government halting most of the projects including the USD 1.5 billion Colombo Harbour City project.
The proposed city was planned to be built on 583 acres of land reclaimed from the sea.
Under the agreement 49 acres of land will be given to the Chinese firm on an outright basis.
It was put on hold as the new government wants to renegotiate its terms.
