Sri Lanka Verifies Significant Debt Agreement With China

Sri Lankan President Ranil Wickremesinghe with Japanese Prime Minister Fumio Kishida

The Sri Lankan government has revealed that it has reached a preliminary agreement with China on debt restructuring, which is considered a big step in the cash-strapped country’s economic recovery.

The Ministry of Finance said in a statement on Wednesday, “The Government of the Democratic Socialist Republic of Sri Lanka 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”.

China holds approximately 52 percent of Sri Lanka’s USD 46 billion in external credit.

“The agreement in principle covers approximately USD 4.2 billion of outstanding debt”, the statement stated, adding that it is a key step towards restoring Sri Lanka’s long-term debt sustainability and will pave the way to a prompt economic recovery.

The agreed-upon restructuring parameters will allow Sri Lanka to go forward with its reform plan.

The administration has expressed hope that it will also facilitate the International Monetary Fund (IMF) clearance of the second tranche of the USD 2.9 billion bailout of around USD 334 million.

“Yesterday marked a big step for Sri Lanka as we reached this landmark agreement in principle on debt treatment terms with our largest single creditor. We thank China Exim Bank for its support in resolving our country’s debt situation”, the statement reads.

Sri Lanka experienced its worst economic crisis in history when its foreign exchange reserves fell to a critical level and the populace took to the streets to protest a lack of fuel, fertilizers, and essential commodities.

This deal is a significant step forward in Sri Lanka’s continuous efforts to promote economic recovery, according to the Treasury Secretary to the Mahinda Siriwardena.

Ranjith Siyambalapitiya, State Minister of Finance, said on Wednesday that China’s assurance to Sri Lanka to restructure its external debt is a significant development for the debt-ridden country’s economic predicament.

Siyambalapitiya stated that when Sri Lanka defaulted owing to the economic crisis in 2022, the island’s outstanding external debt was estimated to be over USD 46 billion.

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Spriha Rai