China announces $42m in emergency aid for Sri Lanka

After months of silence, China has announced an emergency humanitarian aid package of around US$31 million (S$42 million) for Sri Lanka, which is in the grip of its worst economic crisis.

The aid, extended through the China International Development Cooperation Agency, includes 5,000 tonnes of rice, pharmaceuticals, production materials and other essentials, Sri Lanka's Foreign Affairs Ministry told reporters on Thursday.

The announcement came after a meeting between Sri Lankan Foreign Minister G. L. Peiris and the Chinese ambassador in Colombo, Mr Qi Zhenhong.

In March, the envoy told a press conference that Sri Lanka had sought a US$2.5 billion loan and credit line from China.

It was not clear if the US$31 million was part of this request. China's Yunnan province has also announced a donation of 1.5 million yuan (S$316,000) worth of food packages to Sri Lanka.

Long blackouts and shortages in food and medicine have triggered nationwide street protests.

Citizens are demanding that President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, resign. Both have shown no sign of doing so.

But the Prime Minister on Monday proposed restoring a law that clips the president's powers and empowers Parliament as a short-term solution.

Finance Minister Ali Sabry has gone to Washington to negotiate a debt restructuring plan with the International Monetary Fund, a crucial step after the government in Colombo declared last week that it would default on its foreign debts totalling around US$51 billion.

Sri Lanka's foreign currency reserves are worryingly low at about US$500 million, and it hopes to use the money for imports of essentials such as rice, fuel and medicine as it seeks loans and grants from friendly nations to shore up reserves.

Beijing has extended US$1.3 billion in syndicated loans since the Covid-19 outbreak and a US$1.58 billion renminbi-denominated currency swap in December, but has been silent since.

As protesters hold the Sri Lankan government accountable for economic mismanagement - such as borrowing unsustainably from international markets and taking loans from China for loss-making infrastructure projects - experts say that Beijing was perhaps keeping a low profile.

Mr George Cooke, founder of the Colombo-based Awarelogue Initiative think-tank, said: "We have seen a lot of silence on China's part. I believe it is because Sri Lanka's foreign ministry has just not been campaigning vigorously enough for assistance from friendly nations like China, Japan and South Korea.

"India has, meanwhile, been offering proactive help."

India, Sri Lanka's northern neighbour, announced US$500 million in financial assistance on Wednesday to buy fuel, in addition to US$1.9 billion in loans, credit lines and currency swaps.

It also sent ships with sugar, rice and medicine. President Rajapaksa has thanked India for its "invaluable assistance".

New Delhi has been keen for Colombo to loosen the economic ties with Beijing that have grown over the past decade under the Rajapaksas and former prime minister Ranil Wickremesinghe.

Mr Umesh Moramudali, who teaches economics at the University of Colombo and studies Sri Lanka's public debt dynamics, said: "There is a clear shift in China's approach to Sri Lanka, in that it pledged assistance but waited for Sri Lanka to have a clear debt restructuring plan.

"Or maybe it was a reaction to Sri Lanka's recent close relations with India."

Economists say Sri Lanka's urgent need for dollars has left it with no option but to seek help from China.

"It's important to get China's help, specifically through the kind of term financing facilities it has offered in the past, to strengthen foreign reserves," said Mr Moramudali.

Credit lines give fuel or food on credit and do not increase currency reserves, while term loan facilities will give Sri Lanka the dollars it needs to freely spend on imports from any country.

Chinese loans make up about 20 per cent of Sri Lanka's total foreign debt.