By:Staff WriterColombo (LNW): Sri Lanka’s bilateral debt restructuring process has been continued with creditors of China, India and the Paris club separately while treating all bilateral lenders alike, finance ministry sources divulged.
Sri Lanka is discussing its bilateral debt restructuring process separately with China, but Beijing will be treated equally as the other bilateral lenders, a high ranking official of the ministry said.
Sri Lanka owes US $7.1 billion to bilateral creditors, with $3 billion owed to China, $2.4 billion to the Paris Club and $1.6 billion to India, according to finance ministry official data.
The ministry official said “Chinese creditors are not in favor with participation in discussions at a common platform. ‘But they are negotiating as bilateral creditors, with the knowledge of the parameters of the negotiation”
China was the top lender to Sri Lanka’s post-war infrastructure development. During 2010-2016, it accounted for 37 percent of the total external borrowing.
Sri Lanka borrowed $5.9 billion from China for infrastructure development during this period and more than half of these loans from China came through unsolicited proposals for public funded infrastructure projects avoiding the normal competitive procurement process.
China has lent through directly from the Chinese government, from its two policy banks China exim bank and through the Chinese Development Bank.
China is Sri Lanka’s largest bilateral creditor. As of June 2022, it accounted for over 21 percent of Sri Lanka’s total outstanding debt amounting to $8.5 billion.
According to finance ministry sources, majority of Sri Lanka’s borrowings from China are from the policy banks in the form of overseas development assistance (aid, concessional loans and interest-free loans) and official assistance (loans with interest at market rates or higher than market rates).
China EXIM bank has lent around $4.3 billion to Sri Lanka. These lendings have largely been project-specific.
It has also contributed to some mega projects—such as Hambantota Port, Mattala Rajapaksa International Airport, and the Lotus Tower.
On the other hand, CDB has lent around $3.0 billion to Sri Lanka. The bank began investing in Sri Lanka only in 2011, but its funds were limited in scope and extent.
In Sri Lanka, CDB focuses on refinancing loans, rather than project-specific funding, mainly serving as a balance of payment supporter.
In 2018, CDB offered Sri Lanka a funding facility of $1 billion. Similar facilities of $500 million and $700 million in 2020 and 2021.
As signs of economic distress grew in 2022, Sri Lanka sought an assistance of $4 billion from China—this included a fresh loan of $1 billion, a credit line of $1.5 billion, and resuming of a currency swap worth$1.5 billion.
However, these requests were not materialized except currency swap worth$1.5 due to a series of differences between China and Sri Lanka and Colombo since late-2021, such as a tussle over the fertilizer issue, the cancellation of a Chinese solar project in Northern Sri Lanka.