Sri Lanka plans to settle a debt for past oil imports from Iran by paying it off in tea, a government minister said.
Ramesh Pathirana said his country hoped to send $5 million worth of tea to Iran each month to clear a $251 million debt.
Sri Lanka is experiencing a severe debt and foreign exchange crisis, which has been made worse by the loss of tourist income during the coronavirus pandemic.
A member of the country’s tea board said it was the first time tea had been bartered to settle foreign debt.
Mr Pathirana said the method of payment would not violate United Nations or American sanctions, because tea was categorised as a food item on humanitarian grounds, and no black-listed Iranian banks would be involved.
“We hope to send $5 million worth of tea each month to repay Iran for oil purchases pending since the last four years,” he said.
The Plantation Ministry said: “The recommended scheme will save Sri Lanka much-needed foreign currency since the settlement to Iran would be made in Sri Lankan rupees through the sale of Ceylon Tea.”
But a spokesperson for the Planters’ Association of Ceylon, which includes all the major plantation companies in Sri Lanka, said this mode of transaction was a “[sticking] plaster solution by the government”.
“It doesn’t necessarily benefit exporters as we will be paid in rupees, circumventing the free market, and provides no real value to us,” added Roshan Rajadurai.
Sri Lanka is reported to have to meet about $4.5 billion in debt repayments next year, starting with a $500 million international sovereign bond repayment in January.
However, the country’s foreign reserves dwindled to $1.6 billion at the end of November, latest data from the central bank showed.
Central Bank Governor Ajith Nivard Cabraal said earlier this month that Sri Lanka is confident of being able to “seamlessly” repay all sovereign debt that comes due in 2022.
Sri Lanka produces about 340 million kg of tea annually. Last year it exported 265.5 million kg, with earnings of $1.24 billion in 2020.
Almost 5% of the population of Sri Lanka work in the billion-dollar industry, picking leaves on the mountain slopes and processing the tea in plantation factories.