Amidst discussions with the International Monetary Fund (IMF), Sri Lankan President Ranil Wickremesinghe has made an urgent request to China to restructure the country’s debt, however, the Chinese government appears hesitant.
“We have informed the Chinese government [of] the need to restructure [the debt] and the need for all the creditors to sing from the same hymn sheet,” Wickremesinghe told Nikkei Asia.
His interview follows a high-profile meeting with IMF staff in Colombo on Wednesday, where an emphasis was placed on the need for Sri Lanka to pay off its unwieldy debt, which stood at 114% of GDP at the end of last year.
The IMF has stressed that:
“Because Sri Lanka’s public debt is assessed as unsustainable, approval by the IMF Executive Board of the [Extended Fund Facility] program would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored.”
Records from Sri Lanka’s financial ministry place Sri Lanka’s bilateral debt at $9.6 billion and its private credit, which includes international sovereign bonds, stands at $19.8 billion. Reuters notes that Japan and China are the largest holders of bilateral debt, with the latter accounting for about $3.5 billion. Overall, when commercial debt is added, China holds about a fifth of Sri Lanka's debt portfolio.
Nikkia Asia noted that thus far China has proven unwilling to restructure Sri Lanka’s debt, instead offering to refinance loans.
Sri Lanka’s request for debt restructuring follows the controversial visit of a Chinese spy vessel which occurred despite the protest of India’s High Commissioner in Sri Lanka. Responding to the ship, Wickremesinghe claimed:
“The geopolitical situation [in the Indian Ocean] is heating up, but so far we have been able to keep it out and look at our [debt problem] in a purely economic manner”.
He added:
“But there will be issues [with] how the debt is being treated and how the debt relief is to be treated. They will have some geopolitical implications.”
Read more about the Chinese ship here: Sri Lanka U-turns, allowing Chinese spy ship to dock in Hambantota
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