Chinese Foreign Minister and State Council member Wang Yi’s visit to Sri Lanka last weekend marked the first high-level diplomatic visit to Sri Lanka in the new year.

During his whirlwind tour of Sri Lanka, which lasted less than 24 hours, he held separate meetings with President Gotabaya Rajapaksa, Prime Minister Mahinda Rajapaksa and Foreign Minister Prof. GL Peiris, strengthening relations long-standing bilateral. He joined the president and prime minister at the opening ceremony of the Marina Promenade, a public walking path leading to the flagship site of the Chinese-funded Colombo port city project. Minister Yi also visited Sri Lanka in January 2020.

Before arriving in Sri Lanka, the Chinese minister had visited three African countries, Eritrea, Kenya and Comoros, from January 4 to 7 and the Maldives on January 8. Interestingly, China has developed a significant economic presence in all of these countries.

According to Chinese Foreign Ministry spokesperson Zhao Lijian, a visit to Africa at the beginning of every year is customary for Chinese foreign ministers and the visit to the Maldives comes on the occasion of the 50th anniversary of diplomatic relations. between China and the Maldives, and the visit to Sri Lanka comes on the occasion of the 65th anniversary of Sino-Lankan diplomatic relations and the 70th anniversary of the Rubber-Rice Pact.

The landmark rubber and rice deal struck in 1952 by then-Dudley Senanayake government to swap rubber for rice with China amid a currency crisis at that time is widely hailed as a mutually beneficial and successful between the two countries.

Today, Sri Lanka is once again facing a forex crisis while grappling with huge external debt, much of it owed to China. With large-scale investments in Colombo and Hambantota, China has already marked its presence and influence in Sri Lanka. China continues to generously provide financial assistance to the island nation, but given the country’s weak economy, Sri Lanka has little say in the terms of these deals. In short, times have changed and the nature of the agreements between the two countries has also changed.

Geographically positioned at a strategic location in the Indian Ocean, Sri Lanka has attracted much attention from world powers, finding itself in the midst of a heightened power struggle between them. Sri Lanka has had to struggle to balance its relations with India and China, two giants who have been vying for more influence and power in the region lately.

Bilateral talks

The President’s Media Division, in a press release after the President’s meeting with the powerful Chinese delegation, said the President had paid attention to “the restructuring of debt repayments as a solution to the economic crisis. that arose in the face of COVID-19”. pandemic” and “attracting Chinese tourists via the concept of bio-bubble”. “The President also said that if a concessional trade credit program could be launched for imports from China, it would allow local industries to operate smoothly,” the statement added.

According to a bulletin from the Chinese Embassy in Colombo, the Chinese delegation had asked the president to relaunch the talks on a free trade agreement (FTA) between China and Sri Lanka “to send more positive signals to the world and to contribute to the economic recovery and development of Sri Lanka”.

The same bulletin indicates that the Chinese delegation during the meeting with the Prime Minister stressed that “the friendly relations between China and Sri Lanka benefit the development of the two countries and serve the fundamental interests of the two peoples. It does not target any third party and should not be interfered with by any third party. The comprehensive cooperation and strategic mutual trust between the two countries have injected positive energy into regional peace and stability.” Needless to say, the “third party” mentioned here was a thinly veiled reference to India.

The statement added that China has ensured continued assistance to Sri Lanka “to overcome the temporary difficulties within its capabilities”, also stating that “it is certain that the Sri Lankan economy will emerge from the current difficult situation and will make new and greater progress”.

A host of other issues, including continued support for the vaccination programme, attracting investment to the port city and industrial zone of Hambantota, increasing Sri Lankan exports to China and strengthening cultural cooperation, especially in the area of ​​Buddhist ties, were discussed during the meeting, according to a press release issued by the Prime Minister’s Media Division.

As a result of the discussions, four agreements were signed for an RMB 800 million grant, 2,000 housing units for low-income families in Colombo, renovation of BMICH and kidney disease screening ambulances.

A day before the arrival of the high-ranking Chinese delegation, the State People’s Bank settled a balance of US$6.9 million for the controversial shipment of organic fertilizers from Chinese company Qingdao Seawin Biotech Group Co Ltd. arbitration on the issue, and the issue sparked diplomatic tensions between the two countries. After months of stalemate between the two parties, the government has made payment to the company to provide a new shipment of organic fertilizer that meets the required local standards.

Rescue package

In the domestic realm, the government’s economic relief package last week to the tune of Rs. 229 billion ($1 billion) was unexpected but good news for the public who were struggling to make ends meet due to the soaring cost of living.

Finance Minister Basil Rajapaksa, who returned to the country on January 1 after a brief private visit to the United States, got to work in the new year rolling out a massive relief program for the needy despite the general gloom surrounding the country’s economy.

Disabled civil servants, pensioners and war heroes have received a New Year’s boon of Rs. 5,000 monthly allowances from January, and the Treasury has disbursed Rs. 87 billion for the purpose. A demand has been made by the private sector to follow suit by increasing the wages of their workers. As previously agreed, the salaries of teachers and principals were also increased from January to rectify the anomalies. Samurdhi beneficiaries and estate workers are also among those who will receive donations.

In order to compensate the farming community for their loss of crop during this growing season, especially due to unavailability of fertilizers, the government has pledged to purchase paddy at a guaranteed price of Rs. 75 per kilogram, Rs. 25€ more than the previous price. Dispelling doubts, the finance minister said it would be a subsidy to farmers and would not affect rice prices for consumers. At the same time, financial incentives have been announced for home gardening to compensate for any shortages of vegetables and fruits and their fluctuating prices. He announced the decisions shortly after the Cabinet gave them a nod, while expressing hope that these would in turn help the economy rebound.

Macroeconomics

Economists have pointed out that the recently announced stimulus package represents 10% of the projected total revenue of Rs 2.274 trillion for this year. The government has also decided to abolish all taxes and levies on essential goods and pharmaceutical drugs.

The immediate question for many was how the government will handle this additional cost. Barely a month ago, Parliament completed an in-depth debate on the “Budget 2022”. This clearly shows that financial policies these days are not consistent, but subject to change at any time of the year as needed.

The Minister did not go into details of the funding for the relief package, but stressed that no new taxes or levies would be imposed and that spending would be well managed within the budget forecast for the year. He said austerity measures in public sector institutions over the past few months have saved the government Rs. 53 billion.

Despite the minister’s assurance, members of the opposition as well as a number of economic analysts were skeptical and feared that inflation would spike if the government resorted to more money printing to finance this program. rescue. Year-on-year inflation accelerated to 12.1% in December last year, the highest rate since December 2008.

Engulfed in an economic storm, which has been exacerbated by a shortage of dollars, the government has turned to its major donors, particularly China and India, for debt relief. Finance Minister Basil Rajapaksa told Cabinet last week that the government intends to appoint dedicated ministers to each donor country and organization to interact closely with them with the aim of mitigating the current economic crisis, without having to ask for a bailout from the International Monetary Bank. Fund (IMF).