China urged to restructure debt

CHINA is a “very important” creditor of Sri Lanka and it would likely be in the interest of both countries if China participated in restructuring Sri Lanka’s debt, US treasury secretary Janet Yellen said last Thursday (14).

Yellen said she would urge other members of the Group of 20 major economies to put pressure on China to be more cooperative in longstalled efforts to restructure the debts of countries in debt distress, including Sri Lanka.

Sri Lanka owes at least $5 billion (£4bn) to China although some estimates put it at almost twice that amount. India has also lent it $3.8bn (£3bn) and Japan is owed at least $3.5bn (£2.9bn), according to the International Monetary Fund, with another $1 billion due to other rich countries.

“Sri Lanka is clearly unable to repay that debt, and it’s my hope China will be willing to work with Sri Lanka to restructure the debt,” Yellen told a news conference on the sidelines of a meeting of G20 finance officials on the Indonesian island of Bali.

She declined to comment on recent events in Sri Lanka, as it struggles with an economic crisis. Sri Lanka defaulted on its $51bn of international debt in May after years of heavy borrowing and tax cuts by the government, plus the damaging impact of the Covid-19 pandemic.

The economy of the country of 22 million people began to show cracks in 2019 after large tax cuts by president Gotabaya Rajapaksa’s government drained the country’s coffers.

The pandemic then shattered the lucrative tourism industry, and rising global prices have left Colombo struggling for even essentials.