Sri Lanka is allowed to pay off debts with tea

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Tea harvest in Sri Lanka: The island nation is one of the most important tea producers

Photo: DINUKA LIYANAWATTE / REUTERS

Because the small country is currently running out of foreign currency, Sri Lanka plans to pay for $ 251 million in oil imports from Iran with tea.

This was announced by the government in the capital Colombo.

The two countries signed a corresponding agreement to repay debts in the amount of 251 million dollars (the equivalent of about 221 million euros).

Iran is now said to be getting $ 5 million worth of tea from Sri Lanka every month.

The island nation in the Indian Ocean is one of the world's most important tea producers.

The plantation ministry responsible for export said in a statement that the swap "will not violate any UN or US sanctions as tea has been classified as food on humanitarian grounds."

It was the first time that Sri Lanka wanted to pay off debts with tea, it said from the ministry.

Increased risk of default

Sri Lanka will have to repay about $ 4.5 billion in debt over the next year, starting with a $ 500 million international government bond in January.

However, the country's foreign exchange reserves had shrunk to $ 1.6 billion by the end of November.

The rating agency Fitch downgraded Sri Lanka's rating from CCC to CC this month as the risk of default in 2022 increases.

The country is doing poorly economically due to a lack of tourists as a result of the corona pandemic, it is highly indebted.

There is currently also a lack of funds to pay for important imports such as food and medicines.

In addition, business with Iran is affected by the US sanctions over the Iranian nuclear program.

rai / dpa / Reuters