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Tuesday, March 5, 2024

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Sri Lanka Inks Deal With China’s EXIM Bank Covering $4.2 Billion Of Debt

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China surprised the International Monetary Fund and other creditors by negotiating a provisional debt accord with Sri Lanka and leading separate negotiations with the country.

China’s Foreign Ministry said on Tuesday that the Export-Import Bank of China and Sri Lanka had struck a preliminary agreement to settle Sri Lanka’s debt, though it did not disclose specifics of the accord. This week in Morocco, negotiations on a debt restructuring plan that excludes China were scheduled to take place between the IMF and creditors such as Japan, the US, India, and the UK.

Although the IMF was aware that talks were taking place with creditors, Peter Breuer, senior mission leader for Sri Lanka, stated, “We have not yet been informed about any specific agreements.” The multilateral lender would need to “assess the entire package of agreements in its totality to assess consistency with IMF debt targets,” he said.

An official from a creditor country, who wished to remain anonymous, stated that they were likewise unaware of the specifics of China’s arrangement with Sri Lanka.

According to the person, the arrangement is not anticipated to affect the official creditors committee’s efforts to negotiate a debt settlement in Marrakech that would include protections against China receiving advantageous payment terms.

In an attempt to come to an understanding with creditors and holders of the country’s foreign debts, Sri Lanka’s junior finance minister Shehan Semasinghe and central bank governor Nandalal Weerasinghe are in Marrakech this week for the IMF and World Bank annual meetings. Without China present at the conference, creditors wanted to sign a memorandum of agreement with Sri Lanka, Bloomberg News revealed last month.

The Exim Bank agreement was reached one week prior to China’s hosting of the third Belt and Road Forum in Beijing. President Xi Jinping’s signature initiative has drawn criticism for piling debt on underdeveloped countries like Sri Lanka.

About 52% of Sri Lanka’s bilateral debt is owed to China. If a swift agreement is reached, the South Asian country would be able to continue receiving payments from its $3 billion IMF rescue programme.

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