ECONOMYNEXT – Sri Lanka has completed a restructure of loans from China Development Bank and has started repayments, International Monetary Fund program documents showed.
Sri Lanka had started technical exchanges with China Development Bank in person in Colombo in May 2023 and in Beijing in October 2023.
An agreement in principle was reached with CDB in November 2024 and was assessed by the IMF staff as being consistent with debt sustainability.
The Official Creditor Committee has also assessed the loans as being consistent with comparability of treatment.
“Authorities completed their debt treatment with CDB and started paying on restructured debt in December 2024,” the IMF report said.
Sri Lanka borrowed repeatedly from the CDB to repay maturing foreign debt and interest as forex shortages emerged under flexible inflation targeting with an abundant reserve regime (mid corridor targeting) from 2015 where money was printed to reach a 5 percent inflation target based on backward looking 12-month inflation numbers.
Sri Lanka eventually ended up with 2,194 million dollars equivalent including unpaid principle of 640.2 million US dollars by September 2024.
However, the narrative was that China had put Sri Lanka in a ‘debt trap’.
Among the Exim Bank credits was a loan given to build a coal power plant, which the country’s auditor general said was the best investment made since 1980s large hydro projects with European foreign aid.
Related : Sri Lanka restructures China Exim Loans, recapitalizing US$200mn in interest
China’s Exim Bank was the first creditor to restructure Sri Lanka’s debt, head of other Paris Club creditors and sovereign bond holders.
The International Monetary Fund and the US and other countries had ’roundtable’ discussions with China to bring the country into debt restructuring path in line with Paris Club.
Sri Lanka had also reached an agreement in principle with HSBC in October 2024 for a facility backed by Sinosure.
Commercial debt yet to be restructured stands at less than 50 million dollars, the IMF report said. (Colombo/Mar04/2025)
Continue Reading
