COLOMBO – Sri Lanka and China have signed a US$1.5 billion (RM6.18 billion) currency swap deal, the island nation’s central bank said today, as it struggles with a major foreign exchange crisis and debt repayments.
Colombo had been negotiating for months to secure credit from China – its largest single source of imports – as the island’s foreign reserves plummet amid the Covid-19 pandemic.
Chinese influence in the South Asian nation has been growing in recent years through loans and projects under Beijing’s vast Belt and Road infrastructure initiative, raising concerns among regional powers and Western nations.
The Central Bank of Sri Lanka said the three-year swap arrangement with the People’s Bank of China is “with a view to promoting bilateral trade and direct investment for economic development of the two countries”.
Officials said talks are under way to secure another US$700 million from China Development Bank.
Sri Lanka’s economy was already reeling from the deadly 2019 Easter bombings, with the coronavirus outbreak and lockdowns further weighing on growth.
The economy contracted by a record 3.9% last year.
Foreign reserves fell to US$4.5 billion last month from US$8 billion a year ago, despite Sri Lanka banning the import of luxury goods and vehicles, as well as some food commodities.
Under former president Mahinda Rajapaksa between 2005 and 2015, Colombo borrowed billions from China, accumulating a mountain of debt for expensive infrastructure projects.
Rajapaksa returned to power as prime minister in 2019, after his brother, Gotabaya, was elected president.
Sri Lanka was forced to hand over its strategic Hambantota port on a 99-year lease to a Chinese company in 2017 after Colombo said it was unable to service the US$1.4 billion debt from Beijing used to build it. – AFP, March 23, 2021
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