China expressed support for Sri Lanka ahead of a meeting of government lenders to poor economies on Friday, but did not say whether it could help reduce multi-trillion-dollar debts that have plunged the Indian Ocean island nation into a financial and political crisis.
Beijing is one of Sri Lanka’s biggest creditors after it borrowed from President Xi Jinping’s Belt and Road Initiative to expand trade by building ports and other facilities in Asia and Africa. China has offered a two-year suspension of payments, but is reluctant to reduce the amount borrowed. That is an obstacle to obtaining an emergency loan from the International Monetary Fund, which wants other creditors to agree to debt relief.
The Chinese officials will attend a meeting of lenders organized by the IMF and the Paris Club of government creditors. IMF Managing Director Kristalina Georgieva said last month that the agency was talking with Beijing about ways to “reduce the debt burden.”
The Paris Club, after announcing assurances last week to work with Sri Lanka, said: “Paris Club members, as well as Hungary and Saudi Arabia, urged other official bilateral creditors, including China, to do the same accordance with the parameters of the IMF program as soon as possible”. possible.”
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China accounts for about 10% of Sri Lanka’s $51 billion foreign debt. The island nation of 22 million people ran out of hard currency last year. That triggered power outages, food shortages and protests that forced a president and a prime minister to resign.
China is “ready to work with relevant countries and international financial institutions to continue to play a positive role in helping Sri Lanka overcome the current difficulties,” a Foreign Ministry spokesman, Wang Wenbin, said when asked if Beijing would agree to debt reduction.
Rickshaw drivers line up to buy gasoline in Colombo, Sri Lanka, on April 13, 2022. China expressed support for Sri Lanka ahead of a meeting on February 17, 2023 on the nation’s debt. (AP Photo/Eranga Jayawardena, file)
Wang repeated an earlier official statement that China supported Sri Lanka’s request for an IMF loan and would help its government appeal to commercial and other creditors for help.
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The Export-Import Bank of China last month offered Sri Lanka a two-year suspension of payment. A US official said that was too little and called on Beijing to offer more relief.
“We are in direct talks with China,” President Rani Wickremesinghe said last week in a speech to parliament. “Now we are working to unify the approaches of other countries and that of China.”
Sri Lanka’s situation mirrors conditions in dozens of countries from the islands of the South Pacific to some of the poorest in Asia and Africa that have borrowed from the Belt and Road. The total debt of poor countries is rising, raising the risk that others may run into trouble.
Beijing has forgiven interest owed by some, but has avoided writing down the amount borrowed.
Economists say Beijing is likely resisting Sri Lanka’s debt cuts for fear other borrowers will want similar relief. Last April, then-opposition leader Wickremesinghe told Republic TV that China offered a billion-dollar loan instead of reducing Sri Lanka’s debt. That would allow the government to make payments, but the total owed would increase.
Georgieva said IMF officials who visited Beijing discussed with Chinese officials a “path to debt reduction” for Chad, Zambia, Sri Lanka and other troubled debtors.
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A “very widely shared” notion in China is that the country wants to help but “they expect their money back,” Georgieva said.
That makes a haircut, or a reduction in the amount borrowed, “politically very difficult,” Georgieva said. But she said “there might be a way to achieve the same goal” by changing interest rates or payment terms.
Sri Lanka is trying to complete negotiations by the end of March, a government spokesman, Bandula Gunawardena, told reporters on Tuesday. Gunawardena said the IMF concluded that China’s relief offer “is not enough.”
