Some creditors of Sri Lanka seek debt restructuring deal excluding China, reports Bloomberg
Some of Sri Lanka’s official creditors are advocating for a debt restructuring agreement that excludes China, Bloomberg reported on Thursday (28.) This move, if successful, could have implications for how wealthier nations handle financial stress in developing economies.
The proposal involves major creditors, including the US, Japan, and India, signing a memorandum of understanding with Sri Lanka around the time of the upcoming International Monetary Fund (IMF) and World Bank meetings in Marrakesh, Morocco next month, according to anonymous sources. China, holding approximately 10% of Sri Lanka’s external debt as of last year, is not part of this creditor group and is engaged in separate bilateral talks.
The plan is to develop a draft outline, excluding China, and gain Sri Lanka’s consent before the Marrakesh meetings. However, some internal disagreements within the creditor group persist.
An official from the Paris Club, one of the significant debt holders, told Bloomberg that a timeline for the agreement is yet to be confirmed. There was no immediate response from the IMF’s Colombo office, Bloomberg said.State finance minister, Shehan Semasinghe, noted that all creditors are engaging positively.
Bloomberg reports it remains unclear whether this move indicates a loss of patience with China or serves as a negotiating tactic to encourage Beijing’s participation. Sri Lanka’s debt restructuring is viewed as a test case for Chinese involvement in sovereign debt restructuring.
Proceeding without China, as the world’s largest sovereign creditor, would be a setback for global efforts to persuade President Xi Jinping’s government to participate in a new international system providing relief to indebted countries, Bloomberg said.
This comes amid a backdrop of pandemic-induced debt challenges, a strengthening US dollar, and rising US interest rates, leaving many economically vulnerable nations in need of international assistance.
