On Thursday, Japan, India and France announced a new platform to coordinate talks among bilateral creditors for the purpose of restructuring Sri Lanka’s debt. The move is intended to serve as a model for solving the debt problems of middle-income economies, according to a report by Reuters. The initiative, launched by Japan as this year’s G7 chair, aims to begin a series of meetings among Sri Lanka’s creditors, with the first round scheduled to take place “as soon as possible”, said French Director General of the Treasury Emmanuel Moulin during a briefing.
However, it remains unclear whether China, Sri Lanka’s largest bilateral creditor, will join the initiative. According to official government data, Sri Lanka owes $7.1 billion to bilateral creditors, with China being owed $3 billion, followed by $2.4 billion to the Paris Club and $1.6 billion to India. In addition, the government also needs to renegotiate more than $12 billion of debt in eurobonds with overseas private creditors and $2.7 billion on other commercial loans.
The new platform’s launch has put pressure on major economies to come up with an alternative scheme to address the debt restructuring issue in Sri Lanka. Japanese Finance Minister Shunichi Suzuki said the establishment of the negotiation process is a “historical outcome” as the committee is open to all creditors. It remains to be seen how this initiative will affect Sri Lanka’s debt burden and economic outlook in the long run.
