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.

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%.

Colombo:

The Sri Lankan government has confirmed that it has concluded a preliminary deal with China on the restructuring of its debts to Beijing, seen as a “big step” in the cash-strapped country’s economic recovery.

In a statement issued on Wednesday, the Ministry of Finance said, “The Government of the Democratic Socialist Republic of Sri Lanka is pleased to announce that it has reached an agreement on the key principles and indicative terms of a debt treatment with the Export-Import Bank of China.”

China holds about 52 per cent of Sri Lanka’s USD 46 billion external credit.

“The agreement in principle covers approximately USD 4.2 billion of outstanding debt,” it said, adding that it constitutes “a key step towards restoring Sri Lanka’s long-term debt sustainability and will pave the way to a prompt economic recovery”.

The terms of the restructuring agreed upon will provide the space for Sri Lanka to implement its reform agenda.

The government has expressed hope that it should also facilitate approval by the International Monetary Fund (IMF) of the second tranche of the USD 2.9 billion bailout of approximately USD 334 million.

“Yesterday marked a big step for Sri Lanka as we reached this landmark agreement in principle on debt treatment terms with our largest single creditor. We thank China Exim Bank for its support in resolving our country’s debt situation.

Sri Lanka was hit by its worst economic crisis in history when its foreign exchange reserves fell to a critical low and the public came out on the streets to protest the shortage of fuel, fertilisers and essential commodities.

This agreement constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery, the Secretary to the Treasury Mahinda Siriwardena said.

On Wednesday, State Minister of Finance Ranjith Siyambalapitiya said China’s assurance to Sri Lanka to restructure its external debt is an important development for the debt-ridden country’s economic situation.

He added that when Sri Lanka went into default in 2022 due to the economic crisis, the island’s outstanding external debt stood at around USD 46 billion.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)