Sri Lanka forced to enter yet another loan agreement with China amid rising debt crisis

Sri Lanka debt trap treasury

Sri Lanka, a nation that faced a massive economic crisis in recent times, has struck an agreement with the Export-Import (Exim) Bank of China to manage approximately $4.2 billion of the nation’s mounting debt, media reports said.

The announcement, made by Sri Lanka’s finance ministry on October 12, comes as the country grapples with one of its worst economic crises in history, marked by a critical depletion of foreign exchange reserves, reported EPardafas.

The exact terms of the deal is still not clear.

Sri Lanka’s government has expressed optimism that this agreement will facilitate the release of a portion of the $2.9 billion International Monetary Fund (IMF) bailout, aimed at alleviating the nation’s escalating debt burden. This development could pave the way for the disbursement of the second IMF tranche, amounting to approximately $330 million, the news portal reported.

In a statement, Sri Lankan Treasury Secretary K. M. Mahinda Siriwardana acknowledged the significance of the agreement, emphasizing its role in advancing Sri Lanka’s economic recovery, reports Epardafas.

He thanked China’s Exim Bank for their support in addressing the nation’s debt situation, marking a significant milestone for the country.

Despite Sri Lanka’s appreciation for China’s role in this deal, questions arise concerning its transparency and the potential impact on ongoing debt restructuring discussions. This agreement overshadows separate negotiations involving the IMF, Paris Club members, and other creditors, including Japan and India, which are scheduled to convene this week in Morocco for discussions on a debt restructuring plan.

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