China and Sri Lanka's debt restructuring
A series of preliminary agreements have been signed with the China Exim Bank. An intervention with a double value: to recover as much as possible, given that China is Sri Lanka's main creditor, and to increase ties with the country in an anti-India perspective
Colombo (AsiaNews) - China is trying to take a leading role in the debt restructuring process of Sri Lanka: the China Exim Bank has in fact entered into a series of preliminary agreements to support Colombo in repaying its debt.
Although Beijing is Sri Lanka's largest creditor - the island nation owes China around billion - it had previously remained in the shadows and initially played an observer role during Sri Lanka's debt restructuring negotiations, while Japan, France and India - the other major creditors - had formed a common platform for talks with the government.
Sri Lanka's objective is to have the executive committee of the International Monetary Fund (IMF) authorize the next tranche of financing of approximately 334 million dollars to be disbursed following an agreement reached between Sri Lanka and China.
Sri Lanka is currently grappling with its worst post-independence financial crisis after its foreign currency fell to record lows, forcing the island nation to default on its external debt in May 2022.
According to senior officials of the Ministry of Finance of Colombo, "the agreement will facilitate approval by the executive board of the International Monetary Fund, including the disbursement of the next tranche of financing of approximately 334 million dollars".
The deal with China Exim Bank covers a total of .2 billion in outstanding debt. Based on this news, a debt rework between Sri Lanka and countries including Japan, India and France is also expected this week, which constitutes a key step towards restoring Sri Lanka's long-term debt sustainability and will open up the path to a prompt economic recovery."
Mayantha Tennakoon, an academic and economic analyst, revealed to Asia News that “according to official statistics released by the Ministry of Finance, Sri Lanka's total external debt at the end of March 2023 stood at 36.4 billion.
According to the IMF's debt sustainability goals, Sri Lanka plans to reduce its overall debt by almost billion. Sri Lanka is asking its foreign creditors for a 30% haircut. Of this, .3 billion was bilateral debt, .3 billion was multilateral debt to institutions such as the World Bank and the Asian Development Fund, and approximately .7 billion was commercial debt consisting primarily from sovereign bonds”.
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