COLOMBO (Reuters) – Sri Lanka is seeking $ 2.2 billion from Chinese banks, the government said on Thursday, echoes of a borrowing more than a decade ago that forced the country to abandon a strategic port for China.
Minister of Finance and Capital Markets, Nevard Cabraal, said the government hopes to finalize a $ 1.5 billion swap facility with China’s central bank.
“Within the next two weeks we should be able to finish it”, Cabraal told reporters in Colombo, with the assurance that the funds would be used “as storage” to meet the government’s foreign exchange needs.
Official figures show that Sri Lanka’s foreign reserves fell to $ 4.8 billion at the end of January, the lowest level since September 2009 when it fell to $ 4.2 billion.
Officials said Sri Lanka is also in talks with the China Development Bank to obtain a $ 700 million loan that includes the equivalent of $ 200 million to be drawn in Chinese currency.
Under former President Mahinda Rajapaksa, between 2005 and 2015, Colombo borrowed billions from China, accumulating a mountain of debt for expensive infrastructure projects.
This raised concerns in the West and India that the strategically located Indian Ocean country is falling victim to the Chinese debt trap.
Mahinda Rajapaksa returned to power as Prime Minister in 2019 after his brother Gotapaya Rajapaksa 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 $ 1.4 billion in debt that Beijing used to build it.
Three major international rating agencies downgraded Sri Lanka late last year after raising doubts about Colombo’s ability to service its foreign debt.
The South Asian nation’s economy suffers from the dual effects of the deadly 2019 Easter bombings that killed 279 and devastated the tourism sector, as well as the fallout from the pandemic.
Cabraal insisted Thursday that Sri Lanka would keep its record of repaying debts on time, and said the downgrade by international agencies was “unjustified”.
He said Sri Lanka had already paid $ 500 million this year of its $ 3.7 billion debt servicing obligations in the 2021 calendar.
He said the government had imposed a ban on luxury imports and many other goods in an effort to preserve foreign exchange so that the country had enough foreign currencies to pay off its debts.
Sri Lanka’s economy contracted by a record 3.9% last year.
However, Cabraal said that economic activity is improving and the country has estimated an outflow of $ 32 billion against an outflow of $ 27.6 billion this year, leaving a surplus of $ 4.4 billion.