The Wall Street JournalThe Wall Street Journal

Sri Lanka’s Debt Crisis Tests China’s Role as Financier to Poor Countries

By Alexander Saeedy and Philip Wen | Photographs by Ishan Tankha for The Wall Street Journal

13 Jul 2022 · 8 min read

Sri Lanka took many loans from China, and then some more to pay off earlier loans. Find out how this is a playbook China has used with many low-income countries.

Curated by informed

As Sri Lanka’s foreign-exchange reserves began to dwindle under a mountain of debt early in the Covid-19 pandemic, some officials argued it was time to ask for a bailout from the International Monetary Fund, a politically fraught move that traditionally comes with painful austerity measures.

But China, Sri Lanka’s largest single creditor, offered a tempting alternative: Skip the IMF’s bitter medicine for now and just keep adding on new debt to pay off the old, according to current and former Sri Lankan officials. Sri Lanka agreed, and soon $3 billion in new credits poured in from Chinese banks in 2020 and 2021.

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