COLOMBO - China has approved a 10 billion yuan ($1.54 billion) currency swap with Sri Lanka, a government spokesman in Colombo said on Wednesday.
The deal will allow the island to weather "present difficulties", State Minister of Money & Capital Market and State Enterprise Reforms Ajith Nivard Cabraal said in an interview with the Daily Mirror earlier on Wednesday.
Dwindling foreign reserves, a tumbling currency and rising debt levels have dogged Sri Lanka over the last year, leading to increasing fears of a default.
The government of Prime Minister Gotabaya Rajapaksa - which has drawn the country closer to China to the frustration of neighbour India - says this will not happen. It has called downgrades by credit rating agencies and negative comments from investment banks in recent months politically motivated.
Sri Lanka's central bank governor W.D. Lakshman said last month the country was in talks with foreign governments and multilateral partners regarding financing options.
($1 = 6.5108 Chinese yuan renminbi)
(Reporting by Waruna Karunatilake in Colombo and Alasdair Pal in New Delhi; Editing by Chizu Nomiyama and John Stonestreet) ((Alasdair.Pal@thomsonreuters.com; +91 114 954 8060; Reuters Messaging: firstname.lastname@example.org))