China has agreed to provide a loan of $989 million to Sri Lanka to build an expressway that will connect the island nation’s tea-growing central region to a China-run seaport on the southern coast, the island’s finance ministry said Friday.
The Export-Import Bank of China has agreed to provide a loan covering 85 percent of the contract price for Central Expressway Project – Section 1, whose total cost is $1.16 billion. The loan is the single largest loan approved by the bank for Sri Lanka, according to a statement from the finance ministry.
The loan agreement was signed on Friday by Finance Ministry Secretary R H S Samaratunga and Cheng Xueyuan, China’s Ambassador in Sri Lanka on behalf of the Export-Import Bank, at the Ministry of Finance in the capital Colombo.
The expressway will create “an uninterrupted connectivity” among Hambantota district towns with the China-run port, an airport near Colombo, and Kandy in the central region, where the famed Ceylon tea grows.
The statement said the proposed highway will improve the inter-regional connectivity and efficiency of the entire expressway network and added that it will link “several provinces and economically important ports, airports and commercial cities.”
The loan comes as Sri Lanka struggles to repay $5.9 billion in foreign loans this year, of which 40 percent must be paid by the end of this month. The country used its reserves to repay a $1 billion sovereign bond loan in January.
Much of Sri Lanka’s foreign debt is from China, with loans obtained to build highways and other infrastructure projects, including some that have become white elephants, deepening the country’s debt burden.
Sri Lanka leased the Chinese-built Port in Hambantota, which is near the world’s busiest east-west shipping route, to a Chinese firm in 2017 for 99 years in a bid to recover from the heavy burden of repaying a loan obtained the country received to build the facility.
The port is part of Beijing’s so-called string-of-pearls plan for a line of ports stretching from Chinese waters to the Persian Gulf.
China’s influence in Sri Lanka makes neighbouring India anxious because it considers the Indian Ocean region to be its strategic backyard. The Sri Lankan government has been trying to balance its relationship with the Asian giants.
Sri Lankan officials have reiterated that the port’s security will be handled by the government in an attempt to allay fears that the port could be used by China as a military hub.
China says about 150 countries have signed Belt and Road related agreements since the program’s launch more than five years ago. A major conference is planned next month in Beijing, marking further expansion of the initiative.
Beijing has marketed the initiative as a way to give some of the world’s neediest countries a leg up, helping them gain access to more trade and investment. But it also helps Chinese companies tap new markets for their products while helping Beijing amass greater global influence.
Some governments, including the United States, Japan and India, worry that Beijing is trying to build a China centred sphere of influence that would undermine their own sway, pulling developing nations into so-called “debt traps” that would give China ever-more control over their territories and economies.