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13 April, 2021

4 Min Read

China – Sri Lanka relations

China – Sri Lanka relations

  • 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.

Source: TH

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