$A350m of debt owed to Iran by Sri Lanka will be settled in a never-before-seen contra arrangement.
Sri Lanka, already grappling with a decimated economy, has found a way to bypass internationally-imposed sanctions by reaching an agreement to settle debts with Iran via the exchange of one of its staple commodities, tea.
The debt relates to transactions of oil.
In 2012, the US imposed an embargo on Sri Lanka’s tea exports to Iran, resulting in highly disrupted trade.
Plantation Minister Ramesh Pathirana outlined that international sanctions won’t be infringed upon as a result of the agreement, due to tea being classified as a food item.
Sri Lanka’s shrinking economy can be partly attributed to a sharp decline in its tea exports.
In just eight years the country exports less than half the amount of tea than it used to.
In 2012 Sri Lanka exported 40 million kilograms compared with just 15 million kilograms last year.
Sri Lanka is currently also in the midst of a foreign exchange crisis, with its national reserve dropping to just $US1.6 billion ($A2.2 billion).
Its government is struggling to make critical payments for the importation of foods and oil as a result.