Sri Lanka on Tuesday signed a loan agreement with China worth 2 billion Renminbi (USD 308 million) to support its COVID-19 response, economic revival and financial stability, the Chinese embassy said.

"China Development Bank and Sri Lankan Government have entered into an agreement of RMB 2 Billion (approx ₹ 61.5 Billion) Term Facility today (Aug 17), upon a request from Sri Lanka side to support its #COVID19 response, economic revival, financial stability and livelihood betterment," the embassy tweeted.

The latest loan is part of a USD 1.2 billion budget support in credit agreed earlier. Sri Lanka has received USD 1 billion in credit support in two tranches of USD 500 million each in April 2021 and March 2020 respectively.

The coronavirus pandemic has severely jolted the Sri Lankan economy which is dependent on its tourism sector.

Earlier in February, Sri Lanka settled a USD 400 million currency swap facility with India, to tide over financial strains.

Speculation that Beijing is trying to lure Sri Lanka into a debt trap has been outright rejected by the President Gotabaya Rajapaksa-led government.

Struggling to pay back over USD 8 billion-dollar Chinese loans and investments, the previous Sri Lankan government had handed over the majority share of the Chinese-built strategic southern port of Hambantota to a Chinese state-owned company on a 99-year lease in 2017.