Sri Lanka sees the possibility of fresh lending by China to help meet its debt servicing obligations, central bank governor Ajith Nivard Cabraal said, as it faces looming maturities and a brewing balance of payments crisis.

“There’s maybe a possibility of a new loan from China to cushion our debt repayments,” Cabraal told reporters in Colombo without elaborating. “We have an understanding that they would assist us,” he said.

China’s loans to Sri Lanka have often been a contentChina’s loans to Sri Lanka have often been a contentious topic over the past decade, with concerns that the country could struggle to repay and be used by Beijing to counter India and U.S. influence in the Indo-Pacific region. Sri Lanka had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data. ious topic over the past decade, with concerns that the country could struggle to repay and be used by Beijing to counter India and U.S. influence in the Indo-Pacific region. Sri Lanka had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data.

The possibility of a new loan comes after President Gotabaya Rajapaksa asked Chinese Foreign Minister Wang Yi last weekend for Beijing to consider restructuring debt repayments. Delays in securing fresh funds — key to meeting loan obligations — have been cited by Fitch Ratings and Moody’s Investors Service as reasons for cutting Sri Lanka’s credit score deeper into junk and raising the specter of default.

Cabraal told Bloomberg News earlier this week that Sri Lanka won’t need to roll over $1.5 billion of sovereign debt due this year as he’s certain efforts to secure funds will materialize.

He said on Wednesday that a $1 billion credit facility for imports from India was “at reasonable level of advanced negotiations” and will help spur bilateral trade and ease debt servicing too…ReadMore…