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China to 'assist Sri Lanka's debt restructuring' as Gunawardena visits Beijing

Sri Lanka and China have signed nine agreements following the prime minister Dinesh Gunawardena’s recent visit to China this week. Gunawardena stated that China has offered to “assist Sri Lanka debt restructuring” while “extending assistance to develop Katunayake International Airport, Hambantota Sea Port, and the Port City in Colombo.”

A communique on the Prime Minister’s Media Unit stated that nine agreements were signed during this official visit however it failed to state what the agreements were for. Meanwhile, details on the discussions held between Gunawardena and Chinese President Xi Jinping referred to the support offered by China over Sri Lanka's debt restructuring alluding that “the Chinese President assured China will support the schemes necessary for the development of Sri Lanka as soon as they are presented.”

Chinese state media reported Premier Li Qiang as “expressing the hope that Sri Lanka could provide a good business environment for Chinese companies”.

Meanwhile, it quoted Gunawardena as having “thanked China for providing long-term support to Sri Lanka's efforts to safeguard national sovereignty, independence and territorial integrity,” as well as stating “Sri Lanka has always adhered to the one-China principle and will continue to firmly pursue policies to strengthen friendly cooperation with China”.

Gunawardena’s visit to China comes following the approval of the second tranche by the International Monetary Fund. Peter Breuer, the IMF Senior Mission Chief told the press that the IMF has received several proposals but “for us, what is key is that the program objectives are achieved because, with those, Sri Lanka has a chance of emerging from the crisis”.

Breuer warned the country could go back to a crisis if the reforms are not sustained. He said the critical next step is for Sri Lanka to finalize the agreements with the Official Creditors in line with program parameters on time. “This should help restore Sri Lanka's debt sustainability over the medium term,” he continued.

Beijing's position on debt restructuring has not been made public, but Sri Lankan officials have said China was reluctant to take a haircut on its loans but could extend the tenure and adjust interest rates.

Sri Lanka has a total foreign debt of $46.9bn, 52% of which is owed to China, its largest lender. Reaching a deal with all of its creditors will allow Sri Lanka to keep accessing funds from a $3bn bailout programme with the International Monetary Fund (IMF).

India and the U.S. have shown signs of concern over the Chinese foothold at Hambantota, on the island's southern coast, which could boost its naval advantage in the Indian Ocean. Sri Lanka recently declared a moratorium on foreign research ships entering its waters for a year amid concerns from India over Chinese research vessels docking in its neighborhood.

Though the moratorium comes ostensibly for capacity building it is seen as a reaction to growing concerns in India. Sri Lanka has insisted its ports will not be used for any military purposes, but New Delhi has objected to Chinese research vessels calling at Hambantota fearing that they could be used for espionage.

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