COLOMBO: In a major relief for Sri Lanka, the island nation has received tentative approval from China for a debt restructure, marking a crucial step towards stabilizing its precarious financial situation. Sri Lanka, grappling with its worst-ever economic crisis, defaulted on its $46 billion debt last year amid severe food and fuel shortages that inflicted hardship on the country’s 22 million citizens.
China, Sri Lanka’s largest bilateral lender, holds a substantial 52 percent of the nation’s bilateral credit, making its consent vital for any debt reorganization proposal by Colombo. Deputy Finance Minister Ranjith Siyambalapitiya confirmed that the state-owned Export-Import Bank of China, the official creditor, has granted initial consent for the debt restructuring plan. “China has issued their primary consent to restructure our debt,” Siyambalapitiya stated.
Chinese Foreign Ministry spokesman Wang Wenbin revealed that the tentative agreement was reached in late September. He expressed satisfaction that discussions with other creditors were also underway to find solutions to Sri Lanka’s debt challenges. The specifics of the agreement, however, were not disclosed by either party.
Sri Lanka’s Economic Crisis
China’s approval had paved the way for a staged $2.9 billion International Monetary Fund (IMF) bailout, contingent on Sri Lanka implementing austerity measures, including tax hikes and reductions in public subsidies. Although a $2.9 billion bailout was approved, a second tranche of $330 million faced delays last month. The delay was attributed to the IMF’s ongoing review of “financing assurances” from creditors concerning the detailed debt restructuring plan proposed by Colombo in June.
Sri Lanka’s Central Bank Governor, Nandalal Weerasinghe, is currently in Morocco for discussions with creditor nations and the IMF, excluding China. IMF’s Sri Lanka Mission Chief, Peter Breuer, stated that the organization had not yet been informed about any specific agreements with creditors, indicating ongoing complexities in the debt restructuring process.
Sri Lanka’s economic woes last year led to widespread civil unrest, resulting in the removal of then-President Gotabaya Rajapaksa when protestors stormed his residence.
