China Agrees to Debt Restructuring with Sri Lanka


The agreement with the largest single creditor is to help clear one of the biggest barriers the debt-stricken island nation…writes Susitha Fernando

China has at last agreed on a much-awaited debt restricting process with Sri Lanka after the island nation reached an agreement with the China Exim Bank for around $4.2 billion of debt, the Finance Ministry announced on Thursday.

The agreement with the largest single creditor is to help clear one of the biggest barriers the debt-stricken island nation had been facing with regard to engaging in the ongoing IMF bailout process. 

“The Sri Lankan government is pleased to announce that it has reached an agreement on the key principles and indicative terms of a debt treatment with the Export-Import Bank of China. The agreement in principle covers approximately $4.2 billion of outstanding debt,” the Ministry said in a statement. 

It announced that the agreement with the Beijing will constitute a key step towards restoring Sri Lanka’s long-term debt sustainability and will pave the way to a prompt economic recovery.

“The indicative terms agreed will provide the necessary fiscal space for Sri Lanka to implement its ambitious reform agenda. The Sri Lankan government commends the engagement and continuous support of China Exim bank in reaching this agreement in principle, which demonstrates a mutual commitment in line with the goal/objective of restoring public debt sustainability consistent with the IMF-supported program.” 

The Ministry further said that Sri Lanka hopes the achievement would provide an anchor to their ongoing engagement with the Official Creditor Committee and commercial creditors, including the bondholders. 

“It should also facilitate approval by the IMF Executive Board of the first review of the IMF-supported program in the coming weeks, allowing for the next tranche of IMF financing of about $334 million to be disbursed,” it said.

“This agreement constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery,” Treasury Secretary K.M. Mahinda Siriwardana noted. 

The Ministry said in the next few weeks, the Sri Lankan authorities and China Exim bank would actively work on formalizing and implementing the agreed parameters of the debt treatment.

Initially as China did not join the other creditor nation of Sri Lanka, in April India, Japan and France announced a common platform for talks among creditors to address the debt restructuring programme for the island nation that has been grappling with its worst economic crisis.

The largest single creditor, China holds nearly 10 per cent of Sri Lanka’s external debt.

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