China reiterates its financial assistance to Sri Lanka

As the prime minister of the crisis-ridden island country concluded his visit to Beijing on Saturday in an attempt to finalize a debt restructuring agreement, China declared that it will keep up its support for Sri Lanka.

Arriving in China on Monday, Prime Minister Dinesh Gunawardena’s tour includes meetings with President Xi Jinping and an attendance at the Boao Forum, a prominent international gathering.

During Gunawardena’s visit, the long-running economic crisis in Sri Lanka was a major topic of discussion. China is responsible for almost 10% of the South Asian nation’s total foreign debt.

In the Chinese translation of a joint bilateral statement released on Friday, Beijing’s foreign ministry stated that China is prepared to “continue supporting its financial institutions to actively negotiate with Sri Lanka, maintain friendly communication with other creditors, play a positive role in the International Monetary Fund, assist Sri Lanka in financial relief.”

Referring to Xi’s massive global infrastructure initiative, the statement said that the two sides had agreed to “make every effort to promote the Port City Colombo and Hambantota Development Project, turning them into flagship projects of the Sino-Sri Lankan joint construction of the ‘Belt and Road'”.

Under previous President Mahinda Rajapaksa’s 10-year administration till 2015, the southern sea port of Hambantota was one of the country’s “white elephant” projects.

For projects that many criticized as a debt trap that precipitated the biggest economic disaster in Sri Lankan history, Rajapaksa borrowed significantly from China.

Sri Lanka gave the state-owned China Merchants Group a $1.12 billion 99-year lease on the Hambantota port after being unable to pay back a sizable loan that was obtained from China in 2017 to construct the port.

In April 2022, Sri Lanka fell behind on its $46 billion external debt due to a shortage of foreign currency that prevented it from paying for basic imports including food, gasoline, and medication.

Last year, it obtained a $2.9 billion bailout from the International Monetary Fund (IMF), with the program subject to a debt agreement that appeases international creditors.

In December, Beijing and Colombo had agreed “in principle” to restructure Sri Lanka’s debt, but they had not finalized the arrangement and neither had provided any specifics.

The government of Sri Lanka said in January that a restructuring of the country’s foreign debt would be completed by the start of April.