Chinese Development Bank Makes Additional Loans to Sri Lanka, Links Additional Financing to Fight Against Coronavirus

Thus far in March 2020, the state-owned Chi­na Devel­op­ment Bank has extend­ed two sep­a­rate tranch­es of $500 mil­lion and $700 mil­lion to Sri Lan­ka as part of $1.2 bil­lion in loans promised to the island nation to assist in their fight against the coro­n­avirus.  The funds, how­ev­er, are report­ed­ly to be used for infra­struc­ture devel­op­ment, bud­getary sup­port, and debt ser­vic­ing.  The 10-year loan will have an added three-year grace peri­od on repay­ment, along­side inter­est rates linked to the U.S.dollar-Libor rate. Fund­ing is sched­uled to be dis­bursed by the end of March and, then again in, May 2020.

The loans add to Sri Lanka’s sig­nif­i­cant exist­ing debt with Chi­na pri­mar­i­ly tied to the devel­op­ment of the Ham­ban­to­ta Port.  Colom­bo’s inabil­i­ty to repay the loan saw Chi­nese con­trac­tors assume sig­nif­i­cant con­trol of the strate­gic asset and ele­vate its con­trol in Sri Lan­ka and the region.  At present, Sri Lanka’s over­all debt-to-GDP stands at 82.7% — one of the high­est in South and South­east Asia.  By some accounts Chi­nese lend­ing accounts for 10% of the coun­try’s over­all debt.

Some observers view this lat­est set of loans as an exten­sion of Bei­jing’s debt trap diplo­ma­cy, fur­ther­ing the coun­try’s finan­cial depen­den­cy (and vul­ner­a­bil­i­ty) to Chi­na, this time based on a need dri­ven by the coro­n­avirus pan­dem­ic.  In Sri Lan­ka, there are lim­it­ed resources and safe­ty nets to com­bat expo­sure and spread of the virus.