China expressed support for Sri Lanka ahead of a meeting Friday of government lenders to poor economies, but did not say whether it could help cut multibillion-dollar debts that have plunged the Indian Ocean island nation into financial and political turmoil.
Beijing is one of Sri Lanka’s biggest creditors after it borrowed under President Xi Jinping’s Belt and Road Initiative to expand trade by building ports and other facilities across Asia and Africa. China offered a two-year suspension of repayments but refused to cut the amount borrowed. This is an obstacle to obtaining an emergency loan from the International Monetary Fund, which wants other creditors to accept debt relief.
Chinese officials are expected to attend a meeting of lenders organized by the IMF and the Paris government creditors’ club. IMF Chief Executive Kristalina Georgieva said last month the agency was talking to Beijing about ways to “reduce the debt burden”.
The Paris Club, after announcing assurances on cooperation with Sri Lanka last week, said: “Members of the Paris Club, as well as Hungary and Saudi Arabia, have urged other official bilateral creditors, including China , to do the same in line with the parameters of the IMF program as soon as possible.”
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China accounts for about 10% of Sri Lanka’s $51 billion external debt. The island nation of 22 million people ran out of foreign currency last year. This triggered power outages, food shortages and protests that forced a president and prime minister to step down.
China is “willing to work with relevant countries and international financial institutions to continue playing a positive role in helping Sri Lanka overcome the current difficulties,” Foreign Ministry spokesman Wang Wenbin said when the it was asked whether Beijing would agree to debt relief.
Auto rickshaw drivers line up to buy petrol in Colombo, Sri Lanka April 13, 2022. China expressed support for Sri Lanka ahead of a meeting on February 17, 2023, regarding the nation’s debt. (AP Photo/Eranga Jayawardena, Files)
Wang repeated an earlier official statement that China supported Sri Lanka’s request for an IMF loan and would help its government seek help from commercial and other creditors.
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The China Export-Import Bank last month offered Sri Lanka a two-year refund suspension. A US official said it was too little and called on Beijing to offer more relief.
“We are in direct talks with China,” President Rani Wickremesinghe said in a speech to parliament last week. “We are now working to unify the approaches of other countries and that of China.”
Sri Lanka’s situation reflects the plight of dozens of countries, from South Pacific islanders to some of the poorest in Asia and Africa that have borrowed under the Belt and Road. Poor countries’ total debt is rising, increasing the risk that others could get into trouble.
Beijing has forgiven interest owed by some, but has refrained from writing down the amount borrowed.
Economists say Beijing is likely resisting Sri Lankan debt cuts out of fear that other borrowers want similar relief. Last April, then opposition leader Wickremesinghe told Republic TV that China offered a $1 billion loan instead of reducing Sri Lanka’s debt. This would allow the government to make payments, but the total owed would increase.
Georgieva said IMF officials who visited Beijing discussed a “debt relief path” for Chad, Zambia, Sri Lanka and other troubled debtors with Chinese officials.
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A “very widely shared” view in China is that the country wants to help but “they expect to be paid back,” Georgieva said.
That makes a haircut, or a reduction in the amount borrowed, “politically very difficult,” Georgieva said. But she said “there may be a way to achieve the same goal” by changing interest rates or repayment terms.
Sri Lanka is seeking to complete the negotiations by the end of March, a government spokesman, Bandula Gunawardena, told reporters on Tuesday. Gunawardena said the IMF had concluded that China’s aid supply was “not enough”.
