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Sri Lanka settles US$20 million Iranian oil debt with tea

In World
February 22, 2024
Cash-strapped Sri Lanka said on Wednesday it had exported tea worth US$20 million to Iran to partially repay its US$251 million oil debts, with Colombo saying Tehran’s visiting foreign minister had expressed “satisfaction” at the deal.

“So far, US$20 million worth of tea has been exported to Iran under the barter trade agreement,” Sri Lankan Prime Minister Dinesh Gunawardena’s office said in a statement after talks with Iranian Foreign Minister Hossein Amir-Abdollahian.

The tea-for-oil deal was agreed upon in December 2021, but exports were delayed by Colombo’s economic crisis that forced then-president Gotabaya Rajapaksa to step down in July 2022.

Sri Lanka’s Foreign Minister Ali Sabry (right) shakes hands with his Iranian counterpart Hossein Amir Abdollahian in Colombo on Tuesday. Photo: AFP

The barter deal allows sanctions-hit Iran to avoid having to use up scarce hard currency to pay for imports of popular tea.

It also allowed Sri Lanka to pay with tea, as the country was short of foreign currency.

Sri Lankan officials have previously said that the tea-oil swap did not break US sanctions on Iran, since tea was a food item and the deal did not involve Iranian blacklisted banks.
The island nation defaulted on its US$46 billion foreign debt in April 2022 and secured a US$2.9 billion International Monetary Fund (IMF) bailout early last year.

Ceylon tea, known by the island’s colonial-era name, made up nearly half of Iran’s consumption in 2016. However, the proportion has declined in recent years.

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The barter deal comes as Sri Lanka sent a new restructuring proposal to dollar bondholders through its adviser Lazard as the South Asian nation seeks to complete overhauling its defaulted debt, according to people familiar with the matter.

A counter proposal to a bondholder group’s offer in October for a 20 per cent haircut and the issuance of macro-linked bonds was conveyed through Lazard, the people said, declining to be named because negotiations are private. They did not elaborate on the details of the offer.

Government representatives may travel to London soon to meet Sri Lanka’s commercial creditors, one of the people said.

The nation’s dollar bonds made up four of the top 10 performers in emerging markets Wednesday, with notes maturing 2026 up one cent to 53.4 cents on the dollar, according to data compiled by Bloomberg.

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Completing the overhaul of Sri Lanka’s US$27 billion of foreign debt is critical to ensure financing from the IMF bailout keeps flowing. President Ranil Wickremesinghe said this month that authorities expect to complete the restructuring within the first six months of the year.

Calls to Sri Lanka’s treasury secretary, junior finance minister and central bank governor went unanswered. Representatives of the bondholder group and Lazard weren’t immediately available for comment.

The government had already struck restructuring deals with official creditors, including China, India and the Paris Club as well as with holders of its local debt.

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