Sri Lanka owes $7.4 billion to China over external debt

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Sri Lanka owes $7.4 billion to China over external debt

By the end of last year, according to calculations by the China Africa Research Initiative CARI, Sri Lanka owes $7.4 billion to Chinese lenders - nearly a fifth of its public external debt, an estimate higher than many others.

The figure was above the commonly-quoted 10 to 15 percent figures, the study said, adding that a significant portion of the country's debt to China had been recorded under loans to state-owned enterprises rather than central government.

Sri Lanka is in the midst of a debt restructuring after years of economic mismanagement combined with the COVID-19 epidemic, which saw the country plunge into the worst economic crisis since independence from Britain in 1948 and tip into default.

The data collected by CARI at Johns Hopkins University School of Advanced International Studies shows that China's Export-Import Bank of China EximBank and China Development Bank are the two largest Chinese lenders, accounting for $4.3 billion and $3 billion respectively.

China is the largest bilateral creditor with India and Japan and is part of official creditor talks to restructure the country's debt.

CARI researchers Umesh Moramudali and Thilina Panduwawala wrote in the report that China will have to play a major role in Sri Lanka's debt restructuring process.

The island nation kicked off talks with bilateral creditors in September after securing a staff level agreement of $2.9 billion with the International Monetary Fund. The funding will not flow until the fund's board approves the deal, a step that requires financial assurances from bilateral lenders.

According to the report, the island nation's total external debt is $37.6 billion. A $1.6 billion currency swap with China has made public external debt more than $40.6 billion, of which 22% are from Chinese creditors.

CARI's debt numbers differ from the $46.6 billion tally published by the government in September, because it excludes local hard-currencies debt and loans to some state-owned enterprises.

The CARI study also identified six different loans to the deep water port of Hambantota from EximBank between 2007 and 2013 for around $1.3 billion. The loan agreements have clauses that submit the loans to Chinese governing law and arbitration before the China International Economic and Trade Arbitration Commission.