Colombo Resolves Debt Issue with China Amid Sri Lanka Crisis

Sri Lanka has announced that it has reached an agreement with China to restructure $4.2 billion of debt. This comes as Sri Lanka has been attempting to negotiate similar deals with other creditors to unlock the next installment of a bailout package. Sri Lanka defaulted on its foreign debt in May 2022 during a severe financial crisis. The country experienced nationwide protests last year due to soaring prices and shortages of essential goods. Sri Lanka's Finance Ministry expressed gratitude to China's Export and Import bank for its support in resolving the country's debt situation. The ministry stated that this agreement is an important step in Sri Lanka's ongoing efforts to revive its economy. No further details about the agreement were provided by the ministry. Sri Lanka has a total foreign debt of $46.9 billion, with 52% of it owed to China, its largest lender. Reaching agreements with all creditors will enable Sri Lanka to continue accessing funds from the $3 billion bailout program with the International Monetary Fund (IMF). However, the release of the next installment worth $330 million has been on hold since last month due to disagreements between Sri Lanka and the IMF. Reports suggest that Sri Lanka has been struggling to reach a consensus with other creditors at the recent IMF and World Bank meetings. There are concerns that China may have negotiated preferential terms for its loans, putting the burden on other creditors. Japan, India, and France have stated that they were not informed of the deal with China and have requested the same terms for debt restructuring discussions. China has a track record of keeping such agreements confidential. Sri Lanka has insisted that it will treat all creditors equally and has asked lenders to reduce outstanding debt by 30%. Sri Lanka received a $3 billion loan from the IMF earlier this year, and a $600 million loan from the World Bank in 2022.