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.