Sri Lanka moves closer to India to tackle China’s ‘debt trap’

Sri Lanka is moving away from China while moving closer to India following Colombo’s failure to repay Chinese loans worth $4.5 billion amid fears of a ‘trap debt”.

Sri Lanka’s credit rating was downgraded by Fitch Ratings and Moody’s Investor Service due to delays in securing new funds, which are needed to honor loan commitments.

The country is on the verge of default.

On January 17, Sri Lankan President Gotabaya Rajapaksa told visiting Chinese Foreign Minister Wang Yi that “it would be a great relief to the country if attention could be given to restructuring debt repayments as a solution. to the economic crisis that erupted in the face of the COVID-19 pandemic.”

However, China rejected the request, with Chinese Foreign Ministry spokesperson Wang Wenbin remarking, “Sri Lanka will surely overcome the temporary difficulties as soon as possible.”

In recent weeks, the country has struggled to pay its fuel import bills. Recently, India also provided $2.4 billion in financial assistance to Sri Lanka following a two-day official visit by Sri Lankan Foreign Minister GL Peiris to India from 6 to February 8. GL Peiris said Colombo was committed to special relations with New Delhi.

Last Tuesday, the Indian High Commissioner to Sri Lanka handed over a shipment of 40,000 tonnes of fuel by Indian Oil Corp Ltd to Sri Lankan Energy Minister Udaya Gammanpila.

“#India – a committed partner and true friend of #SriLanka. The High Commissioner today handed over a shipment of 40,000 tonnes of fuel by @IndianOilcl to the Honorable Minister of Energy @UPGammanpila.

India-Sri Lanka partnership continues to work towards #lka’s energy security,” the Indian High Commission in Sri Lanka tweeted. In October last year, the Ministry of Agriculture in Colombo detected the highly contaminated organic fertilizer sent from China and canceled the fertilizer and requested India to export nano-nitrogen liquid fertilizer.

Fears are also high in Colombo over Chinese loans, as the country has already been forced to hand over strategic projects like the port of Hambantota to the Chinese on lease for non-repayment of loans.