Sri Lanka is said to have been in talks with China for credit support. The Chinese ambassador to Sri Lanka official said that the country was considering offering a $1.5bn credit facility and were also discussing a separate loan of up to $1bn which the Sri Lankan government had requested. He added that the South Asian nation was offered a loan of $500mn from the China Development Bank on March 18. The update comes just days after India has agreed to extend a $1bn line of credit to the country. Sri Lanka’s forex reserves have dipped to $2.31bn in February, down over 70% since the pandemic in 2020, and is under pressure regarding payment of its debts this year, including a $1bn dollar bond due in July. Recently, Sri Lanka agreed to work with the IMF after having ruled out an IMF bailout in January. IFR notes that China is Sri Lanka’s fourth biggest lender, after international financial markets, the ADB and Japan and the island nation is a key part of China’s Belt and Road Initiative. Some analysts have called this a ‘debt-trap diplomacy.
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