Sri Lanka Bows to Chinese Pressure Over Fertiliser

Sri Lanka paid a Chinese company $6.8 million despite rejecting its shipment of organic fertiliser as substandard, officials said on Saturday, even though Colombo is in the throes of a serious foreign exchange crisis.

The state-run People’s Bank of Sri Lanka said it paid Qingdao Seawin Biotech Group $6.87 million in connection with an out-of-court settlement over the shipment.

Fertiliser is one of the items in short supply in Sri Lanka, but authorities said in October tests had shown the shipment was contaminated and banned it from landing anywhere on the island.

China retaliated by blacklisting the bank and threatening international legal action against Colombo.

Beijing is a key development partner of Colombo and has given billions of dollars in loans, raising concern that Sri Lanka may be heading for a Chinese debt trap, though both nations have rejected such worries.

Wang Yi Visit

The settlement comes ahead of a visit to the island by Chinese Foreign Minister Wang Yi later on Saturday (January 8).

The Chinese representative is making a two-day visit for talks with President Gotabaya Rajapaksa and other leaders, and to mark the 65th anniversary of diplomatic ties between the two sides.

Sri Lanka originally ordered the Chinese organic fertiliser as part of Rajapaksa’s drive to become the world’s first 100% organic farming nation.

Following widespread protests by farmers who said abandoning agrochemicals would critically hit yields, the government in October lifted a ban on chemical fertiliser imposed in May last year.

$500m Bond Repayment

Meanwhile, Sri Lanka has allocated $500 million to repay an international sovereign bond maturing on January 18, central bank Governor Ajith Nivard Cabraal said in a tweet on Wednesday in an attempt to shore up investor confidence.

“CBSL has allocated the required #Forex for the USD 500 million #ISB that is maturing on 18 Jan 22. It’s a shame that some #investors lost out because of organised negative stories spread by certain vested interests,” the governor tweeted.

Sri Lanka has to repay about $4.5 billion in 2022 starting with the $500 million in January.

The country’s reserves had dropped to $1.6 billion at the end of November, forcing the central bank to draw on a $1.5 billion yuan swap from China, to lift reserves to $3.1 billion at the end of December.

Fitch Ratings on December 18 downgraded Sri Lanka‘s sovereign rating to ‘CC’ from ‘CCC’, citing a growing risk of debt default in 2022, despite central bank assurances that steps would be taken to meet all repayments.

• AFP, Reuters with additional editing by Jim Pollard