On October 11, Sri Lanka received a welcome boost to its ongoing efforts to restore its battered economy as China tentatively agreed to a debt restructuring plan. This development comes as Sri Lanka grapples with its worst-ever economic crisis, marked by defaults on its $46 billion debt and severe food and fuel shortages that have affected its 22 million citizens.
China, as Sri Lanka’s largest bilateral lender, plays a crucial role in any proposed financial reorganization by Colombo. Deputy Finance Minister Ranjith Siyambalapitiya confirmed that the state-owned Export-Import Bank of China, Sri Lanka’s official creditor, has granted its primary consent to restructure the country’s debt. This represents a significant step toward resolving the financial crisis.
Chinese Foreign Ministry spokesman Wang Wenbin had earlier mentioned that the Export-Import Bank of China had “tentatively agreed” to the debt treatment in late September. Wang also expressed China’s satisfaction with the discussions on debt solutions between other creditors and Sri Lanka. However, details of the agreement were not disclosed by either party.
China holds approximately 52% of Sri Lanka’s bilateral credit, with Japan and India being the next-largest creditors. In March, China had given its in-principle agreement to restructuring its loans to Sri Lanka, a pivotal move that paved the way for a $2.9 billion International Monetary Fund (IMF) bailout. The IMF’s financial assistance is conditional on Sri Lanka implementing austerity measures, including tax hikes and cuts to public subsidies.
However, the disbursement of the second tranche of $330 million under the IMF bailout was delayed last month. The IMF cited the need to review “financing assurances” from creditors regarding the detailed debt restructuring plan that Colombo proposed in June.
Sri Lanka’s central bank governor, Nandalal Weerasinghe, is currently in Morocco for a meeting with creditor nations and the IMF. Notably, this meeting does not include China, indicating that discussions with other creditors are ongoing.
The economic crisis in Sri Lanka reached its zenith last year, leading to civil unrest and the ouster of then-President Gotabaya Rajapaksa when protesters stormed his residence. Since then, the government has been actively seeking solutions to stabilize the economy and address its debt woes.
