Sri Lanka, EXIM Bank of China reach pact on debt disposal

By Joe Cash

BEIJING (Reuters) -The Export-Import Bank of China reached a preliminary agreement with Sri Lanka last month on the disposal of China-related debts, China’s Foreign Ministry announced on Tuesday, as the island sought debt relief from its biggest bilateral lender.

The update came during a regular news conference in Beijing, in response to a state media query on what assistance Beijing had offered Colombo, which is trying to rework its foreign debt after suspending repayments in May last year.

“In late September, China EXIM Bank, as an official creditor, reached a preliminary agreement with Sri Lanka on the disposal of China-related debts,” Wang Wenbin, a ministry spokesperson, said without adding details.

Sri Lanka is going through its worst economic crisis in more than seven decades and needs to secure debt restructuring assurances from China, its largest creditor, to help unlock further support from the International Monetary Fund (IMF).

Neither EXIM Bank nor Sri Lanka’s Finance Ministry immediately responded to a Reuters request for comment.

Sri Lanka is in talks with the lender over a $2.9 billion bailout package.

The Fund in September declined to release a second tranche of financial support worth around $330 million after it failed to reach staff-level agreement with Sri Lanka over concerns of a possible shortfall in government revenue generation.

Sri Lanka owed China’s EXIM $4.1 billion, or 11% of the country’s foreign currency debt, at the end of 2022, according to government data.

“As a friendly neighbour and sincere friend, China .. has been providing assistance… within its capabilities,” Wang added.

It was not clear if the IMF would need more details from Sri Lanka’s creditors to pass the review and release the next tranche of funding.

Some members of Sri Lanka’s official creditor committee, which includes the U.S., Japan and India, are reportedly pushing for a debt structuring deal without China’s participation.

(Reporting by Joe Cash and Liz Lee in Beijing; Additional reporting by Uditha Jayasinghe in Colombo and Karin Strohecker in London; Editing by Bernadette Baum)