Sri Lanka Debt crises: Sri Lankan Prime Minister concludes China visit, assured of help in easing debt burden

Sri Lanka Debt crises, Beijing:  Following a weeklong official visit to China, Sri Lankan Prime Minister Dinesh Gunawardena has returned home with assurances from Chinese officials regarding assistance in alleviating the country's financial difficulties.

During his visit, which included discussions with Chinese President Xi Jinping and Premier Li Qiang, as well as participation in the Boao Forum for Asia Annual Conference, significant agreements were reached between the two nations.

In a joint statement issued on Saturday, China pledged to play a "positive role" in addressing Sri Lanka's financial challenges and promoting "debt sustainability." This commitment involves cooperation with Sri Lanka's financial institutions, maintaining friendly communication with other creditors, and engaging constructively with the International Monetary Fund (IMF).

One of the key areas of focus during Gunawardena's visit was the Belt and Road Initiative (BRI), China's extensive infrastructure project spanning multiple countries. Both nations agreed to deepen their cooperation within the framework of the BRI, with Sri Lanka committing to accelerate the formulation of a BRI cooperation plan, despite previous concerns about the financial viability of such projects.

Notably, China is Sri Lanka's largest bilateral lender, holding 52% of its USD 40 billion external debt, which became a matter of international attention when Sri Lanka announced its first sovereign default in 2022. Despite this, China had chosen to participate only as an observer in debt restructuring negotiations led by seventeen other creditor countries.

The recent visit comes in the wake of Sri Lanka's decision to impose a moratorium on visits by Chinese research ships to its ports, a move reportedly influenced by security concerns raised by India. However, Sri Lanka has since softened its stance, announcing that foreign offshore research ships would be allowed for replenishments at its ports, albeit with a one-year ban on such vessels.

The visit also follows the IMF's second review of its USD 2.9 billion bailout package with Sri Lanka, emphasizing the importance of reaching agreements with the country's commercial creditors, including international bondholders and the China Development Bank, to achieve long-term debt sustainability.

China's infrastructure investments in Sri Lanka, including the controversial Hambantota port project, have sparked global concerns about Beijing's debt diplomacy. Despite these concerns, both nations continue to seek avenues for cooperation and economic development.

Gunawardena's visit marks the first by a senior Sri Lankan leader to Beijing since the imposition of restrictions on Chinese research ships, underscoring the evolving dynamics of bilateral relations between the two countries.

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