This handout photo released by Sri Lankan Prime Minister’s Office on March 27, 2024 shows Sri Lanka’s PM Dinesh Gunawardena (left) with Chinese President Xi Jinping, before a meeting in Beijing.
| Photo Credit: AFP

China has said it would continue to support Sri Lanka, as the crisis-hit island nation’s Prime Minister on March 30 wrapped up a visit to Beijing to try to finalise a debt restructuring deal.

Prime Minister Dinesh Gunawardena arrived in China on Monday for a visit that included meeting President Xi Jinping and an appearance at the Boao Forum, a high-profile international meeting.

Sri Lanka’s years-long economic crisis was high on the agenda during Mr. Gunawardena’s trip, with China accounting for around 10% of the South Asian country’s total foreign debt.

China is willing 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,” Beijing’s Foreign Ministry said in the Chinese version of a joint bilateral statement released on March 29.

The two sides 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'”, the statement said, referring to Xi’s massive Belt and Road global infrastructure initiative.

The southern sea port of Hambantota was considered among the white-elephant projects launched by former president Mahinda Rajapaksa, who ruled the country for a decade until 2015.

Rajapaksa borrowed heavily from China for projects that many criticised as a debt trap that led to the worst economic crisis in Sri Lanka’s history. Unable to repay a huge loan taken from China in 2017 to build Hambantota port, Sri Lanka handed it over to the state-owned China Merchants Group for $1.12 billion on a 99-year lease.

Sri Lanka defaulted on its $46 billion external debt in April 2022 after it ran out of foreign exchange to finance even essential imports such as food, fuel and medicine. It secured a $2.9 billion International Monetary Fund (IMF) bailout last year, with the programme conditional on a debt deal that satisfies foreign creditors.

China had agreed “in principle” to restructure Sri Lanka’s debt in December, but neither Colombo nor Beijing had given details and the two are yet to finalise an agreement. Sri Lanka’s government said in January that a foreign debt restructure would be finalised by the beginning of April.

Sri Lanka’s Prime Minister Dinesh Gunawardena shaking hands with China’s President Xi Jinping before a meeting in Beijing.
| Photo Credit: AFP

Sri Lanka’s Prime Minister said on March 27 that China has pledged to develop the island nation’s strategic deep sea port and the capital’s airport after talks with his counterpart in Beijing.

Prime Minister Dinesh Gunawardena said China — the island’s biggest bilateral creditor — would “assist” Sri Lanka’s restructuring of external debt, a key condition to maintaining a $2.9 billion IMF bailout.

Beijing’s position on debt restructuring has not been made public, but Sri Lankan officials have said China was reluctant to take a haircut on its loans but could extend the tenure and adjust interest rates.

Sri Lanka in 2022 ran out of foreign exchange to finance essential imports and declared a sovereign default on its $46 billion foreign debt.

Months of protests forced then-President Gotabaya Rajapaksa out of office.

Mr. Gunawardena’s office said Premier Li Qiang had promised China would “assist Sri Lanka’s debt restructuring process continuously and help Sri Lanka to develop its economy”.

Mr. Gunawardena said Beijing had offered “assistance to develop” Colombo International Airport and Hambantota port, the statement added, without giving further details.

A Japanese-funded expansion of Colombo airport had been on hold since Sri Lanka’s sovereign debt default.

The southern sea port of Hambantota was handed to a Chinese state-owned company in 2017 on a 99-year lease for $1.12 billion, sparking security concerns in Beijing’s regional rival India.

India and the U.S. are both concerned that a Chinese foothold at Hambantota, on the island’s southern coast, could boost its naval advantage in the Indian Ocean.

Sri Lanka has insisted its ports will not be used for any military purposes, but New Delhi has objected to Chinese research vessels calling at Hambantota fearing that they could be used for espionage.

Dinesh Gunawardena. File
| Photo Credit: AP

Sri Lankan Prime Minister Dinesh Gunawardena arrived at Beijing on March 25 for a six-day official visit during which he will hold talks with Chinese President Xi Jinping and Premier Li Qiang on ways to further deepen bilateral ties.

“Mr. Gunawardena was received on his arrival by Chinese Vice-Foreign Minister and former Ambassador to India Sun Weidong,” Chinese official media reported.

This will be the first visit by a Sri Lankan leader to Beijing after Colombo put a moratorium on recurring visits by Chinese research ships to Hambantota port, reportedly due to India’s security concerns. Colombo’s move had drawn angry reactions from China.

Earlier this month, however, Sri Lanka said it would allow foreign offshore research ships for replenishments at its ports despite a one-year ban on such vessels.

Some of China’s infrastructure investments in Sri Lanka drew global concerns over Beijing’s debt diplomacy especially after China took over Hambantota port on a 99-year debt swap.

Mr. Gunawardena’s visit also comes days after the International Monetary Fund (IMF) reached a staff-level agreement with Sri Lanka for the next phase that would enable it access to $337 million from the nearly $3 billion bailout approved in 2023 for the cash-strapped country.

In 2022, Sri Lanka announced a default on over $51 billion foreign loans, following which India pitched in with about $4 billion in assistance to enable the island nation to recover from a deep economic crisis.

According to Sri Lanka’s official data, China tops the list of its creditors with 43% followed by Japan with 23% and India with 15%.