China said that one of its financial institutions has reached a preliminary agreement with Sri Lanka on resolving China related debt, potentially a major step towards resolving the South Asian nation’s fiscal woes.

The deal involving the Export-Import (Exim) Bank of China was reached late last month (September), the Chinese Foreign Ministry Spokesman Wang Wenbin said yesterday (10) at a press briefing in Beijing.  “Chinese financial institutions have fully participated in creditors’ meetings as observers, maintained friendly communications with the other creditors and have shared developments on debt disposal,” Wang said.

The deal puts Sri Lanka closer to completing its debt restructuring, as the nation boosts efforts to win agreements with other creditors such as Japan and India, as well as with holders of its foreign bonds. China accounts for about 52% of the bankrupt nation’s bilateral debt. Reaching a deal quickly will allow Sri Lanka to keep tapping funds from its United States Dollars (US $) 3 billion bailout programme with the International Monetary Fund (IMF).

Sri Lankan US $ bonds due 2030 were steady at 45.8 cents on the US $. The nation’s US $ bonds had returned more than 50% this year (2023), according to a Bloomberg index.

Bloomberg News reported last month that some members on the committee of Sri Lanka’s official creditors were pushing to reach a deal to restructure the nation’s debt without China’s participation. The members wanted the group of major creditors to sign a memorandum of understanding with Sri Lanka around the time of the IMF and World Bank meetings which are ongoing in Marrakesh, Morocco.

Separately, Sri Lanka may be able to draw the outlines of a deal with holders of its defaulted US $ bonds as early as this month (October), Bloomberg reported in September.

Sri Lanka in September agreed to restructure about $ 10 billion of local debt.

(Bloomberg)