Colombo: Beijing debt concession crucial for securing IMF bailout
A POTENTIAL International Monetary Fund bailout for Sri Lanka could be delayed if its creditors – the largest being China – do not agree on concessions, the island’s president warned last Friday (5).
A crucial debt restructuring – with the countries to which it owes billions agreeing to write off some of their dues – is a precondition before the IMF will approve a bailout for the country, where inflation is rampant and shortages of essentials widespread. “Until you come to an agreement among the official
creditors, it is not possible to go to the London Club,” Ranil Wickremesinghe told a forum, referring to subsequent debt talks with commercial lenders.
Wickremesinghe did not name a single country, but analysts said he was referring to China, the largest single bilateral creditor, which is owed over 10 per cent of Sri Lanka’s foreign debt.
Officials say clinching an agreement with Beijing is crucial, but China has not publicly shifted from its offer of more loans rather than taking a haircut on existing credit.
Wickremesinghe warned: “It may be bitter, but any medicine for recovery is bitter. You have to take injections.”
Previous presidents, including his predecessor who fled abroad and resigned last month, borrowed heavily from Beijing for infrastructure projects, most of which became white elephants.
Analyst Victor Ivan said debt talks could be leveraged by Beijing to extract concessions in the island, which has become a geopolitical hotspot. Unable to pay back a $1.4 billion (£1.15bn) loan, Colombo handed a Chinese-funded and -built deep sea port to a Beijing company in 2017 on a 99-year lease. “China has done it in the past, but to do it so openly now could backfire on them given Sri Lanka’s circumstances,” Ivan said.
“Renegotiating the Chinese debt could be a sticking point,” former Central Bank of Sri Lanka deputy governor WA Wijewardena said. The US appeared to nudge the island’s creditors last Thursday. On the sidelines of an ASEAN meeting, US secretary of state Anthony Blinken said an IMF bailout “requires appropriate debt restructuring that has to be done on an equitable basis with all of the creditors doing what’s necessary”.