Colombo: Sri Lanka has signed a 10 billion yuan (about USD 1.5 billion) currency swap deal with China for a three year period to be used for promoting bilateral trade and direct investment between the two countries, the Central Bank of Sri Lanka has announced.

The deal was signed between the Central Bank of Sri Lanka (CBSL) and the People’s Bank of China (PBoC), the CBSL statement said on Monday.

“The People’s Republic of China remains Sri Lanka’s largest source of imports. In 2020 imports from China amounted to 3.6 billion US (22.3 per cent of Sri Lanka’s imports), the statement said.

The swap agreement has been approved by the Cabinet of Ministers with the recommendation of the Monetary Board of CBSL. Governors of the two Central Banks, Deshamanya Prof. W D Lakshman of CBSL and Dr Yi Gang, Governor of PBOC, are the signatories to the agreement, the statement said.

Sri Lanka is currently negotiating with India for a one billion US dollar swap with the Reserve Bank of India.

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During last week’s visit by Prime Minister Mahinda Rajapaksa to Dhaka, a joint statement said the Sri Lankan and Bangladeshi central banks would also conduct talks over a possible swap arrangement.

The deal between Sri Lanka and China comes as Sri Lanka is undergoing a difficult time with COVID-19, dealing a severe blow to its economy, especially its USD 4.5 billion tourism industry which was already hit by the Easter Sunday terror attacks in 2019.

China views Sri Lanka as a key player in Beijing’s ambitious Belt and Road Initiative (BRI).

China has provided billions of dollars in loans for key infrastructure projects in this country over the years. Critics say the Chinese-funded infrastructure projects in Sri Lanka are not financially viable and that Colombo will face difficulties in repaying the loans.

Loans from China to build the strategic Hambantota Port has been cited by experts as an example of the debt-trap diplomacy after Sri Lanka defaulted and subsequently gave a 99-year lease to Beijing in 2017 in place of payment.

Sri Lanka also must pay nearly USD 4.5 billion in foreign debts annually until 2025, the Associated Press reported.

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