Sri Lanka moving away from China, getting closer to India, to deal with Chinese 'debt trap'

Sri Lanka is moving away from China while getting close to India over the failure of Colombo to pay back Chinese loans worth USD 4.5 billion, amidst fears of a "debt trap".

Sri Lanka's credit rating has been downgraded by Fitch Ratings and Moody's Investors Service due to delays in obtaining new funds, which are necessary to satisfy loan commitments. The country is on the verge of defaulting.

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 paid to restructuring the debt repayments as a solution to the economic crisis that has arisen 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." Over the past few weeks, the country has struggled to pay off its fuel import bills.

Recently, India also provided financial assistance of 2.4 billion USD to Sri Lanka following a two-day official visit of the Sri Lankan Foreign Minister, GL Peiris to India from February 6 to 8. GL Peiris said that Colombo was committed to special relations with New Delhi.

Last week on Tuesday, the Indian High Commissioner in Sri Lanka handed over 40,000 MT fuel consignment by Indian Oil Corp Ltd to Sri Lankan Energy Minister, Udaya Gammanpila.

"#India - a committed partner and a true friend of #SriLanka. High Commissioner handed over 40,000 MT fuel consignment by @IndianOilcl to Hon'ble Energy Minister @UPGammanpila today. India and Sri Lanka partnership continues to work towards energy security of #lka," the Indian High Commission in Sri Lanka tweeted.

In October last year, the Department of Agriculture in Colombo detected the highly contaminated organic fertilizer sent by China and cancelled the fertilizer and requested India to export nano nitrogen liquid fertilizer.

Fears have also been rife in Colombo regarding Chinese loans, as the country has previously been forced to hand over strategic projects like Hambantota port to the Chinese on lease over non-repayment of loans.