Sri Lanka – debt update

An interesting wrinkle in Sri Lanka’s ongoing economic resurrection efforts, and one with broader geopolitical implications.

Sri Lanka had reached an agreement with the Export-Import Bank of China (China Exim Bank) on key terms and principles for restructuring its debt, which marks a significant step towards unlocking further financial aid from the International Monetary Fund (IMF). The agreement, made in October, encompasses approximately $4.2 billion of Sri Lanka’s outstanding debt.

The IMF is expected to analyze the details of this tentative agreement, which are crucial for Sri Lanka to progress with its IMF program. The Sri Lankan government is awaiting approval from the IMF for a second tranche of funds, and a debt restructuring proposal from the Paris Club consortium..

As reported in a major Sri Lankan newspaper, the consortium has requested access to the agreement between Sri Lanka and China’s Exim Bank, but a confidentiality clause prevents its sharing. The Sri Lankan government has sought permission from China’s Exim Bank, but approval is pending. This delay has caused a delay in the consortium’s debt restructuring program.

As has been clear for some time, there is far more at stake in Sri Lanka’s debt negotiations than the economy of a single nation. China’s role in these negotiations is complex, as this is part of its attempt to reshape the post-World War 2 financial order.