A pre-requisite for the provisional $2.9 billion-IMF package — the loans obtained from China, the island nation’s largest bilateral lender, have come under sharp focus, as Sri Lanka works hard to obtain financing assurances from its diverse creditors.
Months after opting for a pre-emptive and disorderly default on its $ 51 billion foreign debt, Sri Lanka reached a staff level agreement with the International Monetary Fund in September. The government said the programme would put Sri Lanka’s thrashed economy on a path of recovery and reform, making the bankrupt country eligible to borrow again from international sources. The IMF made its support contingent on Sri Lanka obtaining sufficient financing assurances from all its creditors. Account for the largest chunk of Sri Lanka’s external debt, mainly holders of International Sovereign Bonds, China, India, and Japan are the top three bilateral creditors, and play a crucial part in the ongoing negotiations.
While authorities maintain that negotiations with creditors are “progressing well”, they are yet to spell out where exactly the government’s debt restructuring efforts stand, amid concerns over the apparent delay. Earlier this week, Governor of the Central Bank of Sri Lanka, Nandalal Weerasinghe told reporters that if Sri Lanka missed the December deadline, “we still have time until January”.
China will have to play “a major role” in Sri Lanka’s debt restructuring process, with US $ 7.4 billion or 19.6 % Sri Lanka’s outstanding public debt owed to China at the end of 2021, a recent paper by Sri Lankan Economists Umesh Moramudali and Thilina Panduwawala has noted. “It will be the first time a major Asian Belt and Road Initiative borrower is going through the process… China’s approach to Sri Lanka’s debt restructuring and the extent of debt relief offered will set a precedent for China’s role and behaviour in other countries as well,” the authors observed in their research study published by the China Africa Research Initiative, at the Johns Hopkins University School of Advanced International Studies in Washington D.C.
Speaking in Parliament on Wednesday, Opposition legislator from the Tamil National Alliance Shanakiyan Rasamanickam accused China of stalling Sri Lanka’s IMF deal and “forcing down” unnecessary projects by “paying bribes” to Sri Lankans. Referring to Rajapaksa-era mega infrastructure projects in Hambantota and Colombo, funded by the Chinese, the Batticaloa MP said: “That is not China being Sri Lanka’s friend, that is China being Mahinda Rajapaksa’s friend.” The Rajapaksa brothers and their government were dislodged by mass anti-government public agitations earlier this year amid crippling shortages.
On where the apparent delay lies, Shehan Semasinghe, Minister of State for Finance, said, “It is hard to point to one source of delay. We are in constant consultation with our creditors, our advisers, and the IMF to expedite the process. I must say all our creditors are being very supportive.” Despite creditors publicly pledging support to Sri Lanka’s efforts to restructure its debt, the process is taking longer than Colombo anticipated.
