Sri Lanka says it plans to settle a debt for past oil imports from Iran by paying it off in tea.

A government minister, Ramesh Pathirana who disclosed this, said his country hoped to send $5m (£3.8m) worth of tea to Iran each month to clear a $251m 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 this was the first time tea had been bartered to settle foreign debt.

Reports say 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.

His words “We hope to send $5m worth of tea each month to repay Iran for oil purchases pending since the last four years,” he told Reuters

The Plantation Ministry believes 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 $4.5bn in debt repayments next year, starting with a $500m international sovereign bond repayment in January.

However, the country’s foreign reserves dwindled to $1.6bn 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.