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Sri Lanka Reaches Agreement To Settle Chinese Debt

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Sri Lanka has reached an agreement with the China Exim bank on the principles and terms of a $4.2 billion debt settlement, the country’s finance ministry said.

“The agreement in principle covers approximately $4.2 billion of outstanding debt. This represents a key step towards restoring Sri Lanka’s debt sustainability in the long term and will pave the way for a rapid economic recovery,” the ministry said.

Sri Lanka reaches an agreement with the Chinese bank on the terms of settlement of $4.2 billion outstanding debt. Earlier this year, the International Monetary Fund approved a $3 billion loan program for Sri Lanka to help stabilize its economy and begin debt restructuring.

Sri Lankan authorities hope that the agreement “will form the basis for their ongoing engagement with the official committee of creditors and commercial creditors, including bondholders.”

“This should also facilitate the IMF Executive Board’s approval in the coming weeks of the first review of the IMF-supported program, which will enable the release of the next tranche of IMF financing of approximately $334 million,” Sri Lanka’s Treasury said in a statement.

Sri Lanka is facing its worst economic crisis since independence in 1948. In mid-April 2022, the country defaulted on its external debt for an interim period, pending the restructuring of these obligations in accordance with the IMF-backed economic adjustment program. The island nation’s external debt was estimated at $51 billion.

Earlier this year, the International Monetary Fund approved a $3 billion loan program for Sri Lanka to help stabilize its economy and begin debt restructuring. The island nation received an immediate payment of about $333 million under a 48-month program approved by the IMF.

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