China Will Again Provide Financial Support to Sri Lanka

China Will Again Provide Financial Support to Sri Lanka
China Will Again Provide Financial Support to Sri Lanka

China said it would continue to support Sri Lanka. The commitment came as the prime minister of the crisis-hit island nation on Saturday (29/3) completed a visit to Beijing to try to finalize a debt restructuring agreement.

On Monday, Prime Minister Dinesh Gunawardena paid a visit to China. During the visit, he met with President Xi Jinping and participated in the Boao Forum, a high-level international meeting.

The economic crisis that has persisted for years in Sri Lanka was the main focus during Gunawardena’s visit. China contributes around 10 percent of the South Asian country’s total foreign debt.

Beijing expressed its readiness to continue to support financial institutions in active negotiations with Sri Lanka, maintain friendly communications with other creditors, play a positive role in the International Monetary Fund (IMF), and provide financial assistance to Sri Lanka. This was conveyed by the Beijing Ministry of Foreign Affairs in a joint bilateral statement released on Friday.

The two sides agreed to “make every effort to advance the Colombo and Hambantota City Port Development Projects, making them key projects in the joint ‘Belt and Road’ initiative between China and Sri Lanka,” as stated in the statement. This refers to the major projects led by Xi Jinping in the ‘Belt and Road’ infrastructure initiative.

The southern seaport of Hambantota is considered to be one of the projects launched by former president Mahinda Rajapaksa, who ruled the country for a decade until 2015.

Rajapaksa borrowed a lot of money from China for projects that were widely criticized as debt traps that led to the worst economic crisis in Sri Lanka’s history.

Unable to repay the huge loan taken from China in 2017 for the construction of the Hambantota port, Sri Lanka handed over the port to the state-owned China Merchants Group on a lease of $1.12 billion for 99 years.

Sri Lanka defaulted on its $46 billion foreign debt in April 2022 after the country ran out of foreign exchange to finance vital imports such as food, fuel and medicine.

The country received a $2.9 billion IMF bailout last year.

China “in principle” agreed to Sri Lanka’s debt restructuring in December. But neither Colombo nor Beijing has provided details and neither has finalized a deal.

The Sri Lankan government said in January that external debt restructuring would be completed by early April.