Sri Lanka secures $1 billion Chinese loan

Indrajith Coomaraswamy

Sri Lanka’s central bank on Friday announced that it had secured a $1 billion loan from China as the island — a key link in Beijing’s ambitious Belt and Road initiative (BRI) — develops closer relations with Asia’s largest economy.

Central bank Governor, Indrajit Coomaraswamy, said that the first half of loan will be released later this month and the balance will be received in October.

“During consultations — with Chinese for the loan — it was clear that they see us as a key strategic partner as far as the BRI is concerned, given our location,” Coomaraswamy told reporters in Colombo.

The eight-year loan by China Development Bank carries a 5.25 per cent interest rate with a three year grace period. Coomaraswamy said that the terms of Chinese loan were better than other international lenders and the country hopes to secure additional $200 to $250 million from China’s domestic financial market by issuing “Panda bonds”.

Panda Bonds are renminbi-denominated bonds issued by non-Chinese entities in China. They were first issued in October, 2005 by International Finance Corporation and the Asian Development Bank.

Last month, China vowed to extend financial help to Sri Lanka despite warnings about the island nation’s mounting debt. Only last year, Sri Lanka granted a 99-year lease on a strategic port to Beijing over its inability to repay loans for the $1.4b project.

The port in Colombo straddles the world’s busiest east-west shipping route and also gives a strategic foothold to China in a region long dominated by India.

China had said its loan portfolio in Sri Lanka was $5.5b as of last month, just over a tenth of Colombo’s total $51.82b external debt.

“China will continue to provide selfless support, including much-needed funds for the development of Sri Lanka,” the Chinese embassy in Colombo said in a statement released last month. The International Monetary Fund (IMF), which bailed out Sri Lanka in June 2016 with a $1.5b staggered loan, has warned Colombo over its mounting debt.

Sri Lanka’s economy has been on the mend since the IMF bailout, but 3.1pc growth in 2017 was the slowest in 16 years.

The central bank had earlier set the target for 2018 growth to fall somewhere between 4.0-4.5pc, but was revised to 4pc on Friday.