ECONOMYNEXT – Sri Lanka is engaging positively with all foreign creditors State Minister for Finance Shehan Semasinghe said this week as an International Monetary Fund review hangs in the balance on restructuring.
“All creditors are engaging positively with us,” Minister Semasinghe said. “We expect decisions from all our creditors. For us earlier the better.”
Sri Lanka is negotiating with Paris Club creditors and several non-Paris Club creditors like India and Saudi Arabia together and China separately. China is an observer in the Paris Club meeting.
The Paris Club held a meeting on Sri Lanka on September 22 with China as an observer.
Though Paris Club creditors have a well-oiled mechanism to give a quick decision on countries that default, the entry of China which had earlier not been willing to restructure debt, but was willing to give fresh loans to repay instalments, have complicated matters.
“Let me say again that we support Chinese financial institutions in actively working out the debt treatment with Sri Lanka,” China’s Foreign Ministry spokesman Wang Wenbin told reporters on September 26.
“We are ready to work with relevant countries and international financial institutions to jointly play a positive role in helping Sri Lanka navigate the situation, ease its debt burden and achieve sustainable development.”
There are expectations that Sri Lanka may be able to wrap up a preliminary deal with official creditors as early as October 2023 around the time IMF’s annual sessions take place in Morocco.
Sri Lanka President Ranil Wickremesinghe is to make an official visit to China October.
Sri Lanka is expected to finalize a refinery deal in Hambantota among other investments during the visit, according to reports.
Completing Sri Lanka’s external debt restricting is key to completing the first review of the island’s reform and stabilization program with the International Monetary Fund, which is expected in October or November.
Without completing a review Sri Lanka will not have formal IMF economic targets for December, and no disbursement of the second tranche.
World Bank and IMF with the G20 group, which include India and China has formed Global Sovereign Debt Roundtable has been trying to fine tune debt restructuring going beyond the Paris Club.
IMF’s Senior Mission Chief for Sri Lanka Peter Breuer said Sri Lanka’s debt is ‘spread around quite a bit’ to a question whether an IMF review could progress without China, possibly indicating that the lender would prefer to have the country on board.
“This is a process that we have that applies in the case of Sri Lanka to both official creditors, meaning other countries that have lent to Sri Lanka on a bilateral basis as well as commercial creditors, for example, bond holders,” Breuer told reporters in Colombo.
“And as you know, the government is in discussions with all of these groups. In Sri Lanka’s case, the debt is spread around quite a bit externally and domestically.”
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Out of Sri Lanka’s 36.59 billion US dollars of central government debt, multilaterals held 29.8 percent or 10.9 billion US dollars which will not be restructured.
Bilaterals held another 29.9 percent of which Paris Club was 12.1 percent and China 12.7 percent.
Of the commercial debt which was 40.3 percent, China Development Bank held another 6 percent, relating to a monetary instability loan it has given as a bailout without asking for rate hikes to stop output gap targeting.
China without AIIB held 6,850 million US dollars or 18.7 percent of central government external debt. (Colombo/Sept29/2023)