In a move of a friendly country in need for Sri Lanka , China has extended assurance for the island nation’s debt restructuring with the submission of the relevant letter to the International Monetary Fund to unlock a US4 2.9 billion bailout loan, Chinese diplomatic sources confirmed.
China has taken this action several weeks after India has given its assurance for debt restructuring and now Japan is ready to follow suit.
China’s Export-Import Bank of China (EXIM) has provided Sri Lanka with a debt extension, China’s Foreign Ministry said.
EXIM offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure a $2.9 billion loan from the International Monetary Fund, according to a letter reviewed by Reuters news agency.
China and India are the biggest bilateral lenders to Sri Lanka, a country of 22 million people that is facing its worst economic crisis in seven decades.
“China feels for Sri Lanka as it faces difficulties and challenges and has been helping with Sri Lanka’s socio-economic development as best as we can,” the Foreign Ministry said in comments to Reuters.
In the wake of China’s gesture, Japan’s top finance diplomat, Masato Kanda said that crisis-hit Sri Lanka was a key issue when it came to helping countries in debt but he was not sure when creditors aiming to extend it loans would meet.
He said that middle-income countries have been left without an international arrangement to address the debt crisis.
“Japan is closely coordinating with international organs such as the Paris club or IMF in order to ensure participation of non-Paris Club members such as China and India,” Kanda said.
There is no doubt that International Monetary Fund (IMF) loans often come with a set of conditions that most countries find unfavorable to implement. With its ongoing economic crisis and complex multilateral debt negotiations between creditor nations, Sri Lanka is no exception.
On the request of Sri Lankan President Ranil Wickremesinghe, Japan took the lead the debt restructuring talks with creditor nations.
Japanese Finance Minister Shunichi Suzuki emphasized the role that bilateral creditors like India and China should play in dragging Colombo out of its worst economic crisis since gaining independence in 1948.
The restructuring of Sri Lanka’s debt held by India and China provides Sri Lanka with a certain amount of leverage in the IMF negotiations. Interestingly, this also reflects the changing regional dynamics of the last few years.
Sri Lanka is of strategic interest to China for its trade and infrastructure connectivity in the Indian Ocean region as part of the Belt and Road Initiative (BRI). It became more crucial after India announced its non-participation in the BRI.