China has expressed support for Sri Lanka ahead of a meeting of government lenders to poor economies but did not say if it would help reduce a multibillion-dollar debt that has plunged the Indian Ocean nation into financial and political turmoil.
Beijing is one of Sri Lanka’s biggest creditors after extending it loans under President Xi Jinping’s Belt and Road Initiative, which expands trade by building ports and other facilities across Asia and Africa.
China has offered a two-year suspension of repayments but hesitated at reducing the amount owed. That is an obstacle to obtaining an emergency loan from the International Monetary Fund, which wants creditors to agree to debt reductions.
Chinese officials are due to attend a meeting of lenders organized by the IMF and the Paris Club of government creditors. The IMF’s Managing Director, Kristalina Georgieva, said last month that the agency was talking with Beijing about ways of “reducing the burden of debt.”
The Paris Club, after announcing last week its assurances on working with Sri Lanka, said, its members “as well as Hungary and Saudi Arabia urged other official bilateral creditors, including China, to do the same in line with IMF program parameters as soon as possible.”
China accounts for about 10% of Sri Lanka’s $51 billion foreign debt. The island nation of 22 million people ran out of foreign currency last year. That triggered power cuts, food shortages and protests that forced a president and prime minister to resign.
When asked whether Beijing would agree to a debt reduction, Foreign Ministry Spokesperson, Wang Wenbin answered, China is “willing to work with relevant countries and international financial institutions to continue to play a positive role to help Sri Lanka get over current difficulties.”
Wang repeated an earlier official statement saying that China supports Sri Lanka’s application for an IMF loan and would help its government ask for help from commercial and other creditors.
Last month, the China Export-Import Bank offered Sri Lanka a two-year repayment suspension. An American official said that was too little and called on Beijing to offer more relief.
“We are in direct discussions with China,” Sri Lankan President Rani Wickremesinghe said last week in a speech to Parliament.
“We are now working towards unifying the approaches of other countries and that of China,” the President added.
Total Debt Of Poor Countries Is Rising
Sri Lanka’s situation reflects conditions across dozens of countries, from South Pacific islands to some of the poorest in Asia and Africa, that borrowed under the Belt and Road Initiative. The total debt of poor countries is rising, increasing the risk that others might also run into trouble.
Beijing has forgiven interest owed by some but has avoided writing down the amount borrowed.
Economists say Beijing probably is resisting cuts to Sri Lanka’s debt for fear that other borrowers will want similar relief. Last April, then-opposition leader Wickremesinghe diosclosed that China offered an additional $1 billion loan instead of reducing Sri Lanka’s debt. That would allow the government to make payments, but the total amount owed would rise.
Georgieva said IMF officials who visited Beijing discussed with Chinese officials a “pathway for debt reduction” for Chad, Zambia, Sri Lanka and other struggling debtors.
A “very broadly shared” notion in China is that the country wants to help but “they expect to be paid back,” Georgieva said.
That makes a reduction in the amount borrowed “politically very difficult,” Georgieva said. But she said there “might be a way to reach the same objective” by changing interest rates or repayment terms.
Sri Lanka is trying to complete negotiations by the end of March, government Spokesperson, Bandula Gunawardena said. Gunawardena added that the IMF has concluded that China’s offer of relief “is not sufficient.”
“I hope the IMF will, by March, be able to ensure that the debt restructuring can begin,” President Rani Wickremesinghe said.