Sri Lanka on 12 April inked an agreement with the Beijing-run China Development Bank for a loan of $ 500 million, less than a month after it signed a currency swap deal worth $ 1.5 billion with Beijing, to ensure fiscal stability in the country amidst the challenges posed by the pandemic.
“China is a loyal friend, and reflecting the depth of our friendship, has been generously extending its helping hand to Sri Lanka when difficult challenges confronted us,” according to a statement released by the Sri Lankan embassy in Beijing.
“This $ 500 million loan was a part of the $ 1 billion loan (signed before), out of which $ 500 million was released last year,” it said.
The loan will infuse much-needed foreign currency to the Lankan economy in order to face the Covid-19 challenges, it said.
Experts pointed out that the loan is being extended as Sri Lanka’s foreign exchange reserves dropped to $ 4.05 billion in March 2021, the lowest since a currency crisis in 2008-09.
Last month, Sri Lanka had signed a 10 billion yuan (about $ 1.5 billion) currency swap deal with China for a three year period to be used for promoting bilateral trade and direct investment between the two countries.
China views Sri Lanka as a key player in Beijing’s ambitious Belt and Road Initiative (BRI). China has provided billions of dollars in loans for key infrastructure projects in the country over the years.
Critics say the Chinese-funded infrastructure projects in Sri Lanka are not financially viable and that Colombo will face difficulties in repaying the loans.
Massive debt incurred towards China to build the strategic Hambantota Port has been cited by experts as an example of the ‘debt-trap diplomacy’ being pursued by Beijing.
After Sri Lanka defaulted the loan for the Hambantota Port, Colombo in 2017 was forced to lease out the port to a Chinese company on a 99-year lease.