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Wang Yi's two-day visit, which is set to take place between January 7 and 9, comes amid a quarrel between the two countries over a contaminated consignment of organic fertilizer, which has resulted in unforeseen tensions between the two countries.

In the midst of a debilitating economic crisis, China's Foreign Minister Wang Yi will travel to Sri Lanka next week to push the long-delayed India-Sri Lanka plan for joint development of the Trincomalee oil tank farm forward.

Wang Yi's two-day visit, which is set to take place between January 7 and 9, comes amid a quarrel between the two countries over a contaminated shipment of organic fertilizer, which has resulted in unforeseen tensions between the two countries.

Beijing blacklisted the Sri Lankan state-run People's Bank and accused it of a "vicious" default on the letter of credit payment after Colombo canceled an order for the import of 99,000 tonnes of the fertilizer.

Sri Lanka agreed to pay $6.4 million to settle the dispute earlier this month, with the Chinese company commencing arbitration proceedings for $8 million in compensation.

Wang Yi's visit will be notable for the sweeteners he may provide the Rajapaksa government in order to reclaim lost goodwill.

Meanwhile, Colombo is nearing completion on plans to build a large oil tank farm in Trincomalee in collaboration with India. Despite the fact that neither country is saying it explicitly, Delhi may give financial support to Sri Lanka in exchange for its assistance in overcoming its current issue.

"We have stressed that both items should move forward in tandem, and that progress in one should support progress in the other in terms of expanding economic links," an official source said, adding that the Trincomalee oil tank farm contract might see significant progress in the coming month.

At the end of November, Sri Lanka's foreign exchange reserves had dropped to $1.6 billion. Food imports have decreased as a result of the shortfall, driving up the cost of staples in the country. Sri Lanka does not want to receive an IMF bailout as a last resort.

Fitch downgraded Sri Lanka from CC to CCC earlier this month, saying that the country was likely to fail on two foreign sovereign notes, one due in January 2022 for $500 million and the other due in July for $1 billion.

Fitch's action, according to the Central Bank of Sri Lanka, was "rash" and did not take into account Colombo's diplomatic push to friendly countries for financial assistance. Cash flows are projected by the end of December 2021 and March 2022, according to the bank's statement.

"The government and the Central Bank remain optimistic that these inflows will materialize, with Gross Official Reserves remaining above USD 3 billion by the end of 2021." "Fitch appears to have overlooked the USD 1.5 billion standby SWAP facility with the People's Bank of China," according to the press statement.

In March 2021, Sri Lanka inked a three-year "standby" swap arrangement with Beijing, in addition to loans and Foreign Currency Term Financing agreements agreed upon earlier in the year. The governor of the Central Bank stated earlier this month that the government may use this to pay for Chinese goods.

Colombo, on the other hand, has sought assistance from India. Sri Lankan Finance Minister Basil Rajapaksa was offered a "four-pronged package" when he visited Delhi in November: a line of credit for fuel imports only from India; early completion of the joint India-Sri Lanka development plan for the Trincomalee oil tank farm; an offer of a currency swap to help Lanka pay its foreign debt; and facilitation of Indian investments in various sectors.

The Sri Lankan weekly Sunday Times reported earlier this week that Energy Minister Udaya Gammanpila had instructed the chairman of the Ceylon Petroleum Corporation (CPC) to establish a subsidiary company, Trinco Petroleum Terminal Ltd, as the special purpose vehicle for the India-Sri Lanka joint development of the Trincomalee oil tank farm.

At a Cabinet meeting next week, the decision is expected to be adopted. According to the publication, President Gotabya Rajapaksa approved the formation of the group.