China on Monday signed a $500 million loan agreement with Sri Lanka, in a move that Colombo hopes would boost its foreign reserves that are under severe strain since the pandemic struck last year.
This is the second instalment of the $1 billion loan sought by Sri Lanka last year. The first was released in March 2020, just as the pandemic hit Sri Lanka.
The approval comes a month after Sri Lanka obtained a currency swap facility from China for $1.5 billion. Meanwhile, the Beijing-based Asian Infrastructure Investment Bank (AIIB) also sanctioned Sri Lanka’s request for a $180 million loan in February. Sri Lanka already owes more than $ 5 billion to China from past loans.
Sri Lanka, like many pandemic-hit countries, is facing an acute economic crisis for over a year now, with its rupee plummeting to nearly 203 against the U.S. dollar.
The country’s foreign reserves dropped to $ 4.05 billion in March this year, after its exports and tourism sector earnings, and foreign remittances dropped considerably in the last 12 months.
Sri Lanka is due to repay some $ 4.5 billion of its outstanding debt this year and the government has said it is “exploring all options”.
India extended a $400 million swap facility through the Reserve Bank of India, and provided a three-month rollover, but the facility was not further extended. The Central Bank of Sri Lanka settled the swap in February this year.
Meanwhile, Colombo is awaiting New Delhi’s response on two requests made last year by the government.
While PM Mahinda Rajapaksa sought a debt moratorium on the debt Sri Lanka owes India, President Gotabaya Rajapaksa requested Prime Minister Modi for a $ 1 billion currency swap last year. Neither request has been cleared by New Delhi as yet.