Sri Lanka strikes debt deal with China, surprises IMF

October 11, 2023 (MLN): Sri Lanka has taken the International Monetary Fund (IMF) by surprise by reaching a preliminary debt agreement with China.

To note, the IMF and other creditors had been engaged in separate talks with Sri Lanka regarding debt agreements.

In late September, as an official creditor, the Export-Import Bank of China tentatively agreed with Sri Lanka on the debt treatment, said a press release issued by China’s foreign ministry yesterday.

The IMF and creditors like Japan, the US, and India were expected to hold talks this week in Morocco on a debt restructuring plan without the participation of China, as Bloomberg reported.

Peter Breuer, senior mission chief for Sri Lanka at the IMF, said while it knew discussions were taking place with creditors, "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 one of the creditor nations, who asked not to be identified, said they had also not been informed of the terms and details of China's agreement with Sri Lanka.

The agreement is not expected to change efforts by the official creditors committee to reach a debt deal in Marrakech, which would include safeguards to prevent favorable payment terms to China, the official said.

Sri Lanka's central bank Governor Nandalal Weerasinghe and Junior Finance Minister Shehan Semasinghe are in Marrakech this week at the IMF and World Bank annual meetings to try to reach an agreement with creditors as well as holders of its foreign bonds.

Creditors were aiming to sign a memorandum of understanding with Sri Lanka at the meeting without the participation of China, Bloomberg News reported last month.

The Sri Lanka officials didn't immediately respond to questions seeking further details.

The Exim Bank deal conies a week before China hosts its third Belt and Road Forum in Beijing, a flagship program by President Xi Jinping that has faced criticism for burdening developing nations like Sri Lanka with debt.

China accounts for about 52% of Sri Lanka's bilateral debt. Reaching a deal quickly will allow the South Asian nation to keep tapping funds from its $3 billion bailout program with the IMF.

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