Sri Lanka receives a $500 million loan from China

Sri Lanka signed a $ 500 million loan agreement with the state-run China Development Bank on Monday, less than a month after signing a $ 1.5 billion currency swap agreement with Beijing to maintain fiscal stability in the face of the pandemic.

"China is a loyal friend, and reflecting the extent of our friendship, has generously extended its helping hand to Sri Lanka when challenging challenges confronted us," said the Sri Lankan embassy in Beijing in a statement. "This $ 500 million loan was part of the $ 1 billion loan (signed previously), of which $ 500 million was issued last year," the statement concluded.

According to the statement, the loan would inject much-needed foreign currency into the Lankan economy in order for the country to face the Covid-19 challenges.

As per experts, the loan is being extended as Sri Lanka's foreign exchange reserves dropped to $ 4.05 billion in March 2021, the lowest following the 2008-2009 currency crisis.

Sri Lanka signed a three-year currency swap agreement with China worth 10 billion yuan (about $ 1.5 billion) last month to promote bilateral trade and direct investment between the two countries. Sri Lanka is regarded as an important player in China's ambitious Belt and Road Initiative (BRI).

Over the years, China has issued billions of dollars in loans for key infrastructure projects in the region. According to critics, the Chinese-funded infrastructure projects in Sri Lanka are not financially viable, and Colombo will struggle to repay the loans. Experts have cited the massive debt incurred against China to develop the strategic Hambantota Port as an example of Beijing's 'debt-trap diplomacy.' Colombo was forced to lease the Hambantota Port to a Chinese company on a 99-year lease in 2017 after Sri Lanka defaulted on the loan for the port.