Sri Lanka turns to China for $500 million to boost forex reserves

Sri Lanka's cash strapped government looks set to receive a financial lifeline from China for foreign debt servicing, affirming it as lender of the last resort to the island nation.

In the wake of foreign reserves plummeting to US$4.1 billion sufficient for three months of imports, the Finance Ministry has signed an agreement to get a $500 million loan from China Development Bank (CDB), a senior Treasury official said.

The CDB loan facility of $500 million would be disbursed this month, he said adding that the April tranche is the second 500 million dollars of a 1.2 billion dollar facility Sri Lanka has been seeking from the CDB.

The country has already received $ 500 million last year as the first tranche of the CDB facility, he revealed.

The $700 million balance CDB loan would come in as a $500 million dollar credit and the balance $200 million would be Renminbi denominated, he said.

Sri Lanka has about $3.5 billion of foreign currency denominated debt to repay from March to December 2021, and the balance is owned by resident holders, officials said.

Sri Lanka began the year with about $6.8 billion of forex denominated debt due in 2021 of which about $ 2.5 billion was domestically owned, a senior Central Bank official said.

These include Sri Lanka Development Bonds and loans taken from the foreign currency banking units of domestic banks, he explained. (BS)