China must take a haircut on its loans to poor countries, says India’s G20 Sherpa

Beijing needs to come out openly and say what their debt is and how to settle it, says Amitabh Kant

Updated - February 15, 2023 09:49 pm IST

Published - February 15, 2023 07:25 pm IST - Colombo

G20 Sherpa Amitabh Kant.

G20 Sherpa Amitabh Kant. | Photo Credit: ANI

China must agree to take a haircut on its loans to poor countries and assist their economic recovery, India’s G20 Sherpa has said, in a rare, direct reference to Chinese debt of developing nations.

“China needs to come out openly and say what their debt is and how to settle it,” said Amitabh Kant, according to a Bloomberg news report. “It can’t be that the International Monetary Fund [IMF] takes a haircut and it goes to settle Chinese debt. How is that possible? Everybody has to take a haircut,” the Sherpa was quoted as saying.

While the United States has been a vocal critic of Chinese debt in developing nations, with its top officials frequently commenting on the top Asian lender’s role in the restructure process, India has seldom made mention of China while commenting on sovereign debt of countries.

Mr. Kant’s remarks assume significance ahead of a scheduled virtual meeting of the Global Sovereign Debt Roundtable, organised by the IMF, the World Bank and India, which is leading the Group of 20 major economies this year. The virtual roundtable on February 17 will be followed by an in-person meeting in Bengaluru on February 25, PTI news agency reported from Washington DC.

The meeting will not feature a “country-specific” discussion but will focus on broader issues “impeding reaching a timely debt restructuring process”, and lessons from recent cases and possible technical solutions to address shortcomings, Director of the IMF’s Strategy and Policy Review Department Ceyla Pazarbasioglu told reporters. Officials from creditor countries including China, India, Saudi Arabia, the United States and Group of Seven (G7) members are expected to participate.

Sri Lanka’s case

Meanwhile, Sri Lankan President Ranil Wickremesinghe on Wednesday said the debt-ridden island nation hoped to receive the IMF’s $2.9 billion package by March to set the country’s economy on a path of recovery after last year’s painful financial crash.

He had aimed to tap IMF assistance by the end of 2022, but the process was delayed, as Sri Lanka was unable to obtain adequate financing assurances from its creditors — a pre-requisite for the crucial IMF programme — by the end of last year.

China, Japan, and India are Sri Lanka’s top three bilateral creditors, and India became the first among them to send written financing assurances to the IMF on January 16. The Paris Club, an informal creditors’ group of which Japan is a member, followed suit.

Although the Export-Import Bank of China has offered a two-year moratorium to Sri Lanka, Beijing is yet to provide specific financing assurances to the IMF to help Sri Lanka unlock the $2.9 billion “bailout package” that Colombo is desperately counting on to rebuild its economy.

The Ceylon Chamber of Commerce, while commending the “timely announcements” by India and Paris Club members on their financing assurances, has urged China to step in swiftly. “The Chamber appreciates the support given by China in the economic development of Sri Lanka and requests [China] to work with the IMF in order for Sri Lanka to receive its much-needed funding as a key bilateral creditor,” the island’s top business chamber said in a recent statement.

India and the Paris Club have emphasised the need for equitable treatment of all bilateral lenders, effectively signalling China must receive no concessions in the process. On Beijing’s position on a possible debt reduction, Chinese Foreign Ministry spokesperson Wang Wenbin said at a daily briefing on Wednesday that China “stands ready to work with relevant countries and [international] financial institutions to continue to play a positive role in helping Sri Lanka navigate the situation, easing its debt burden and helping it achieve sustainable development.”

However, it remains to be seen if China will come on board by sending written financing assurances to the IMF, especially since Beijing has indicated that Sri Lanka’s multilateral loans must also be subject to a haircut. Reiterating the position, Mr. Wang told media that the Export-Import Bank of China will “continuously call on commercial creditors to provide debt treatment in an equally comparable manner and encourage multilateral creditors to do their utmost to make corresponding contributions.”

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