(MENAFN- Colombo Gazette)
China will seek preferential treatment on Sri Lanka’s debt restructuring, which will primarily serve Beijing’s own interests and, in this context, Colombo must avoid this type of debt overhang efforts at all costs, according to media reports.
China’s role in Sri Lanka’s debt restructuring efforts should be watched with great caution as the island nation begins negotiations with major lenders. Concerns are that China’s debt relief and restructuring in various economically troubled countries differs significantly from that of other lenders.
Based on these experiences, it is natural to expect China to pursue tailor-made discussions and preferential treatment, which Sri Lanka cannot afford to pursue.
Among the lenders are the International Monetary Fund (IMF) and other multilateral organizations, such as the World Bank and the Asian Development Bank. In analyzing China’s central position as one of the country’s major creditors, it is crucial to note that how China engages with Sri Lanka will have a significant impact on the trajectory and timing of the restructuring of the country’s debt.
This will further decide Sri Lanka’s path to debt sustainability and economic recovery. In a recent interview regarding Sri Lanka’s predicament, an IMF official said that “Sri Lanka (should) engage aggressively with (China) on debt restructuring”, even though talks with the Fund are underway, true ceylon reported.
Sri Lanka’s total central government debt (including domestic and foreign currency) is expected to exceed $81 billion and the government’s interest payments bill is among the highest in the world, approaching 7% of GDP.
Given the scarcity of properly categorized and published statistics on the different categories of debt, this overall amount of debt may be underestimated.
Sri Lanka owes about US$12.3 billion to private creditors, the main source of external credit, who hold International Sovereign Bonds (ISBs), Sri Lanka Development Bonds and some syndicated loans, annual external debt payments from USD 1.3 billion in 2009 to USD 4.1 billion in 2020.
An additional $9 billion is outstanding with multilaterals, $5.6 billion with bilateral creditors other than China, $5 billion with China, and $3.5 billion with Japan.
China holds about 6.2% of Sri Lanka’s total central government debt, some as central government debt (about USD 670 million), but the majority as debt through public institutions such as than China EXIM Bank and China Development Bank (CDB), totaling more than $7 billion.
These loans have supported a wide range of projects, including utilities, roads and highways (including sections of the southern and central highways), poorly designed ports and airports, vanity convention centers and tower blocks. telecommunications. As a result, problems regarding the value of Chinese loans persisted throughout the previous decade.
With foreign exchange reserves shrinking to just a few days of import cover or less and a serious default looming, the Sri Lankan government declared a unilateral debt moratorium on April 12, halting debt repayments. external debt with the exception of payments to multilateral development banks (MDBs).
Discussions with the IMF on a rescue package (an “extended financing facility”) have continued since then, although a services-level agreement has yet to be reached.
The Executive Board will only accept a program and make further disbursements if the IMF has “adequate funding guarantees” and if its major shareholders have confidence in Sri Lanka’s fair treatment of its debtors.
Until then, other multilateral agencies, such as the World Bank and the Asian Development Bank, will refrain from lending additional money to Sri Lanka. (ANI)
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