Sri Lanka and China have signed a $1.5 billion currency swap deal, the island nation’s central bank said Tuesday, as it struggles with a major foreign exchange crisis and debt repayments.

Colombo had been negotiating for months to secure credit from China -- its largest single source of imports -- as the island’s foreign reserves plummet amid the pandemic.

Chinese influence in the South Asian nation has been growing in recent years, through loans and projects under its vast Belt and Road infrastructure initiative, raising concerns among regional powers and Western nations.

The Central Bank of Sri Lanka said the three-year swap arrangement for 10 billion yuan with the People’s Bank of China was “with a view to promoting bilateral trade and direct investment for economic development of the two countries”.

Officials said talks were also underway to secure another $700 million from the China Development Bank.

Sri Lanka’s economy was already reeling from the deadly 2019 Easter bombings, with the coronavirus epidemic and lockdowns further weighing on growth.

The economy contracted by a record 3.9 percent last year.

Foreign reserves fell to $4.5 billion in February from $8.0 billion a year ago, despite Sri Lanka banning the import of luxury goods and vehicles as well as some food commodities.

Under former president Mahinda Rajapaksa between 2005 and 2015, Colombo borrowed billions from China, accumulating a mountain of debt for expensive infrastructure projects.

Rajapaksa returned to power as prime minister in 2019, after his brother Gotabaya Rajapaksa was elected president.

Sri Lanka was forced to hand over its strategic Hambantota port on a 99-year lease to a Chinese company in 2017 after Colombo said it was unable to service the $1.4 billion debt from Beijing used to build it.

- AFP