Dragging debt talks in Sri Lanka put spotlight on Chinese loans  

A view of the Hambantota port. File

As Sri Lanka works arduous to acquire financing assurances from its various collectors — a pre-requisite for the provisional $2.9 billion-IMF bundle — the loans obtained from China, the island nation’s largest bilateral lender, have come beneath sharp focus.

Earlier this week, Governor of the Central Financial institution of Sri Lanka Nandalal Weerasinghe instructed reporters that if Sri Lanka missed the December deadline [to report to the IMF], “we nonetheless have time till January”. Whereas authorities preserve that negotiations with collectors are “progressing effectively”, they’re but to spell out the place precisely the federal government’s debt restructuring efforts stand, amid considerations over the obvious delay.

Months after choosing a pre-emptive and disorderly default on its $ 51 billion overseas debt, Sri Lanka reached a employees stage settlement with the Worldwide Financial Fund in September. The federal government stated the programme would put Sri Lanka’s battered economy on a path of restoration and reform, making the bankrupt nation eligible to borrow once more from worldwide sources. The IMF made its help contingent on Sri Lanka acquiring enough financing assurances from all its collectors. Whereas non-public lenders, primarily holders of Worldwide Sovereign Bonds, account for the biggest chunk of Sri Lanka’s exterior debt, China, India, and Japan are the highest three bilateral collectors, and play a vital half within the ongoing negotiations.

Talking in Parliament on Wednesday, Opposition legislator from the Tamil Nationwide Alliance Shanakiyan Rasamanickam accused China of stalling Sri Lanka’s IMF deal and “forcing down” pointless initiatives by “paying bribes” to Sri Lankans. “If China is actually Sri Lanka’s good friend, ask the Chinese language to assist with the [debt] restructuring and the IMF programme,” he stated. Referring to Rajapaksa-era mega infrastructure initiatives in Hambantota and Colombo, funded by the Chinese language, the Batticaloa MP stated: “That’s not China being Sri Lanka’s good friend, that’s China being Mahinda Rajapaksa’s good friend.” The Rajapaksa brothers and their authorities have been dislodged by mass anti-government public agitations earlier this 12 months amid crippling shortages.

Responding to the TNA legislator on twitter, the Chinese language Embassy stated working groups of various Chinese language banks had visited the island, and “bilateral negotiations are on”. The Embassy’s tweet contended that his understanding was “incorrect and incomplete.”

China must play “a significant function” in Sri Lanka’s debt restructuring process, with US$ 7.4 billion or 19.6 % Sri Lanka’s excellent public debt owed to China on the finish of 2021, a latest paper by Sri Lankan Economists Umesh Moramudali and Thilina Panduwawala has famous. “It will likely be the primary time a significant Asian Belt and Street Initiative borrower goes by the method… China’s strategy to Sri Lanka’s debt restructuring and the extent of debt aid supplied will set a precedent for China’s function and behavior in different nations as effectively,” the authors noticed of their analysis examine revealed by the China Africa Analysis Initiative, on the Johns Hopkins College College of Superior Worldwide Research in Washington D.C.

Diplomatic sources in Colombo stated they have been awaiting extra “readability” on the precise means of debt restructuring, on whether or not Sri Lanka is adhering to the precept of “comparative and equitable remedy” of all collectors, and the “salutary impact” the method might need on the Sri Lankan economic system. “It additionally seems that Sri Lanka is now extra focussed on getting FDIs and resuming commerce pacts with numerous nations slightly than expediting debt restructure talks,” a Colomb-based diplomat stated.

Regardless of collectors publicly pledging help to Sri Lanka’s efforts to restructure its debt, the method is taking longer than Colombo anticipated. On the place the obvious delay lies, Shehan Semasinghe, Minister of State for Finance, instructed The Hindu: “It’s arduous to level to at least one supply of delay. We’re in fixed session with our collectors, our advisers, and the IMF to expedite the method. I have to say all our collectors are being very supportive.”

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