Despite IMF warning on Colombo's huge debts, China lends $1 bn to Sri Lanka

Sri Lanka's central bank on Friday announced it had secured a $1 billion Chinese loan as the island, a key link in Beijing's ambitious Belt and Road initiative, develops closer relations with Asia's largest economy.

Central bank Governor Indrajit Coomaraswamy said that first half of the loan will be released later this month and the balance will be received in October.

"During consultations (with the Chinese over the loan) it was clear that they see us as a key strategic partner as far as the (Belt and Road) initiative is concerned, given our location," Coomaraswamy told reporters in Colombo.

The eight-year loan by China Development Bank carries a 5.25 per cent interest rate with a three year grace period.

Coomaraswamy said that the terms of Chinese loan were better than other international lenders and the country hopes to secure additional $200 to $250 million from China's domestic financial market by issuing "Panda bonds".

Last month, China vowed to keep providing financial help, including loans, to Sri Lanka despite warnings about the island nation's mounting debt.

Sri Lanka last year granted a 99-year lease on a strategic port to Beijing over its inability to repay Chinese loans for the $1.4 billion project.

The port in Colombo straddles the world's busiest east-west shipping route and also gives a strategic foothold to China in a region long dominated by India.

China had said its loan portfolio in Sri Lanka was $5.5 billion as of last month, just over a tenth of Colombo's total $51.82 billion external debt.

"China will continue to provide selfless support, including much-needed funds for the development of Sri Lanka," the Chinese embassy in Colombo said last month.

China's Belt and Road infrastructure project seeks to revive ancient trade routes through a massive rail and maritime network via $1 trillion in investments across Asia and Europe.

The International Monetary Fund, which bailed out Sri Lanka in June 2016 with a $1.5 billion staggered loan, has warned that Colombo over its heavy debt.

Sri Lanka's economy has been on the mend since the IMF bailout, but growth in 2017 at 3.1 per cent was the slowest in 16 years.

The central bank had forecast 2018 growth at between 4.0 to 4.5 per cent, but Coomaraswamy on Friday revised his estimate for the calendar year to below 4.0 per cent.