In an unexpected development in the region, China secured a tentative debt agreement with Sri Lanka, outpacing concurrent negotiations that the International Monetary Fund (IMF) and other creditors were conducting with the South Asian nation.
On Tuesday, China’s Foreign Ministry revealed that the Export-Import Bank of China had reached a preliminary agreement with Sri Lanka to address its debt issues, although specifics of the arrangement were not disclosed.
Earlier, Bloomberg reported that the IMF, along with creditors such as Japan, the United States, and India, was preparing to convene discussions in Morocco this week regarding a debt restructuring plan for Sri Lanka. Notably, these discussions were set to exclude China’s participation.
Sri Lanka’s central bank Governor, Nandalal Weerasinghe, and Junior Finance Minister, Shehan Semasinghe, are presently in Marrakech for the IMF and World Bank annual meetings, actively working to secure an agreement with creditors and holders of the country’s foreign bonds.
Peter Breuer, the senior mission chief for Sri Lanka at the IMF, expressed awareness of ongoing discussions with creditors but indicated that the IMF had not received any formal communication about specific agreements. He emphasized that the IMF would need to thoroughly assess the entirety of the agreement to ensure they align with IMF debt targets.
An anonymous official from one of the creditor nations said that they, too, had not been apprised of the terms and details of China’s agreement with Sri Lanka. According to the official, the newfound agreement is not anticipated to impede the official creditors committee’s efforts to reach a debt deal in Marrakech. Such a deal would also incorporate protective measures to prevent preferential payment terms for China.
It was reported last month that creditors aimed to formalize a memorandum of understanding with Sri Lanka during the meeting, excluding China from the proceedings. As of now, Sri Lankan officials have not responded to inquiries seeking further details about the agreement with the Export-Import Bank of China.
The agreement with the Exim Bank comes just a week ahead of China’s third Belt and Road Forum in Beijing, a flagship initiative led by President Xi Jinping, which has faced criticism for the debt burdens it places on developing nations, including Sri Lanka. Notably, China holds approximately 52% of Sri Lanka’s bilateral debt. This timely agreement is expected to enable the South Asian nation to continue accessing funds from its $3 billion bailout program with the IMF.
