China Sanctioned USD 1 Bn Loan to Sri Lanka

Sri Lanka will get a $1 billion loan from China, its biggest lender and might sign a free trade agreement with Beijing, becoming the third country to ink such a pact in India's neighbourhood.

Sri Lankan envoy to Beijing Karunasena Kodituwakku, who made the announcement here, said it was wrong to accuse China of pushing the South Asian island nation into a debt trap.

Sri Lanka will soon sign a concessional loan agreement with the Export-Import Bank of China to borrow $1 billion to fund a major highway from Colombo to its second largest city Kandy, Kodituwakku said on Tuesday at a briefing, apparently only for select media.

The money will be used for the first stage of the central highway and the second stage will be financed by Sri Lankan consortiums and the third by Japanese loans, the Global Times quoted him as saying.

It was not clear if the envoy was talking about the same $1 billion loan which his country's top bank official said will come from the Export-Import Bank of China.

Sri Lanka is trying to limp back to normalcy after being hit by a deep political crisis last year that plunged the credit rating of the already-indebted country.

The Chinese have made deep inroads into the strategically located nation in the Indian Ocean and have a 100-year lease of the Hambantota Port after Sri Lanka failed to pay back loans.

Beijing's growing presence in Sri Lanka worries India which held considerable clout in the country.

The envoy also said that Sri Lanka was in talks with China on a Free Trade Agreement (FTA).

"They have reached consensus on many issues, but (the agreement) isn't finalised," said the Ambassador. "We hope this year will be the critical year to finalize it."

If materialised, Sri Lanka will be the third South Asian country to sign such a pact after Pakistan and the Maldives.

The new Maldivian government is rethinking on its FTA as it believes that the pact is blindly in favour of Beijing.

Kodituwakku also revealed that Sri Lanka was negotiating with the China Development Bank for short-term loans.

He slammed the Western media's allegations that China's financial assistance to Sri Lanka had led it into a debt trap.

"We don't agree with that. China never forced us to take a loan... If there is something wrong with the loans we have taken, it's our responsibility. It's not fair to blame China or another country, saying Sri Lanka is a victim," he said.

He emphasised that it was on Sri Lanka's request that China provided funds, especially the development assistance.

"This year Sri Lanka has to settle nearly $4 billion, and the country has more than $8 billion in reserves. But we cannot use all that money just to pay back. We have to keep a minimum balance," he said.

According to the Ambassador, the Colombo port was a very crucial transit port serving India.

India's strong economy will prop up the port as a successful entity. He hopes Chinese firms can turn the Hambantota Port into a successful facility.

In October, Sri Lanka received orders worth at least $15 million at the China International Import Expo (CIIE).

"We would like to enhance exports to the Chinese market," he said, adding the items could include tea, jam, vegetables, fish and natural rubber-based products.

"We also invite more Chinese investors to invest in Sri Lanka. Sri Lankan exports have concessional access to US, Indian and European markets. They can come to take advantage of these opportunities."