Sri Lanka Secures Debt Deals with China, Sets Stage for IMF Bailout

Sri Lanka has reached a significant milestone by finalizing long-awaited debt agreements with its bilateral lenders, including China, a crucial step towards fulfilling conditions set by the International Monetary Fund (IMF) for a bailout package. The announcement was made by government spokesman Bandula Gunawardana on Tuesday, noting that a treasury delegation is en route to France to sign agreements with creditors on Wednesday.

The debt agreements are critical to Sri Lanka's efforts to stabilize its economy after defaulting on foreign debt in April 2022 due to severe foreign exchange shortages. This economic crisis led to the resignation of then-President Gotabaya Rajapaksa. Negotiations with creditors, particularly bilateral lenders, who account for 28.5% of Sri Lanka's total outstanding foreign debt of US$37 billion, had been prolonged, with expectations for a resolution by the end of 2022.

China stands as the largest single bilateral lender to Sri Lanka, with loans amounting to US$4.66 billion, out of a total of US$10.58 billion borrowed from other countries. Japan follows with US$2.35 billion, and India with US$1.36 billion. Sri Lanka's commercial borrowings include US$12.55 billion from International Sovereign Bonds (ISBs) and US$2.18 billion from the China Development Bank.

Gunawardana mentioned that negotiations with ISB holders are ongoing while emphasizing that the debt agreement with bilateral creditors marks a significant achievement for Sri Lanka. President Ranil Wickremesinghe is set to disclose further details of these agreements in a national address on Wednesday evening. Gunawardana declined to provide specifics, indicating they would be formally announced by the president.

This development underscores Sri Lanka's efforts to manage its debt burden and restore economic stability, which is crucial for navigating through its financial challenges and seeking support from international financial institutions like the IMF.