China Assures Sri Lanka Of Debt Restructuring

The Chinese government has assured Sri Lanka that it would assist the island nation’s debt restructuring process continuously and help Colombo to develop its economy. Sri Lanka’s Prime Minister, Dinesh Gunawardena who is on a six-day visit to Beijing held talks with Chinese President Xi Jinping and Premier Li Qiang.

Gunawardena after meeting Chinese leaders said that Beijing was committed to enhancing the development of the island nation’s crucial deep sea port in Hambantota and the capital’s Katunayake International Airport.

In 2017, a Chinese state-owned company secured the strategically located Hambantota Port on a 99-year lease for $1.12 billion sparking concerns about Beijing’s increasing foothold in the Indian Ocean.

China is the largest creditor to Sri Lanka and the debt structuring is likely to help Lanka to clinch an International Monetary Fund (IMF) bailout. The Chinese assurance comes days after the IMF said that the $2.9 billion bailout was dependent on reaching an agreement with the country’s commercial creditors, the international bondholders and China Development Bank.

In 2022, Colombo faced a major economic crisis leading to the government defaulting on its debt which is pegged around $46 billion. This resulted in widespread protests, ultimately resulting in the resignation of then-president Gotabaya Rajapaksa. A caretaker government was formed under Prime Minister Ranil Wickremesinghe.

During his meeting with Gunawardena, Xi reportedly called for the consolidation of friendly relations between both the countries and assured Sri Lanka that Beijing is willing to help Colombo to tide over the crisis. He also called on Sri Lanka to join hands to advance their strategic cooperative partnership featuring sincere mutual assistance and ever-lasting friendship, according to an official statement.

In 2023, India’s $4.4 billion official credit excluding other forms of lending helped Sri Lanka to secure a bailout from the IMF. The economic crisis comes after two decades of heavy Chinese investment, which has pushed the country into a debt trap.