Sri Lanka’s debt restructuring talks are now underway with creditors including China that will test whether Beijing and rival lenders such as India can put aside their differences to help the island escape its economic crisis.
“We are sure that China will assist us in these difficult times,” Sri Lanka’s president Ranil Wickremesinghe said in parliament recently as he announced the launch of talks with Beijing.
He added“It is our expectation now to come to a common agreement as soon as possible.”
Crisis-hit Governmet’s negotiations with its creditors have become an indicator of how creditors respond to rising global debt distress, with Beijing’s role drawing particular international inspection.
Sri Lanka currently struggles with goods shortages, rising hunger and political party disunity amidst mounting US $50bn in foreign debt to private bondholders such as Black Rock as well as countries including China, Japan and India.
The Paris Club creditor country’s last month reached out to China and India seeking to coordinate closely on Sri Lanka’s debt talks but is still awaiting a reply,informed international sources including reuter news agency revealed.
Paris Club officials have contacted two of Sri Lanka’s biggest bilateral creditors after the cash strapped government reached a staff-level agreement with the International Monetary Fund board for a $2.9 billion loan in September.
The Paris Club still hasn’t received a reply from any of those two countries informed sources added.
Officials also met with Indian officials in Washington on the sidelines of the annual meetings of the International Monetary Fund and World Bank. Chinese officials were not present in person.
Sri Lanka is grappling with the worst economic crisis in more than seven decades, with more than a quarter of its population struggling with food shortages, according to United Nations estimates.
The island nation of nearly 22 million people, is seeking an ad-hoc coordination platform to obtain financing assurances from bilateral lenders, which also include Japan.
As a middle-income country, Sri Lanka is not able to apply for relief under the Group of 20 common frameworks for debt treatments.
Its total foreign currency debt of $38.7 billion amounted to 48.2% of GDP, the latest IMF report showed in March.
The person added that India and China might be at odds on who should take the first step to engage in close coordination with the Paris club in Sri Lanka.
The country owes close to $14 billion to a wide range of bilateral creditors, of which 66% is owed to non-Paris Club members, according to Sri Lankan government data.
The country also needs to renegotiate around $12 billion with overseas bondholders after defaulting on its international debt earlier this year.
While the country is promoting the ad-hoc common framework, it is still unclear which country would chair a creditor committee
