China reiterates support for Sri Lanka’s debt relief ahead of crucial IMF review

Sri Lanka, bilateral lenders yet to reach agreement on a debt treatment plan

Sri Lanka’s Prime Minister Dinesh Gunawardena with Chinese Foreign Minister Wang Yi, on the sidelines of the ongoing China-South Asia Exhibition, in Kunming, China’s southern Yunnan Province. Photo: Special Arrangement

China has pledged help for Sri Lanka’s debt challenge yet again,even as theRanil Wickremesinghe government tries to finalise the terms of restructuring its foreign loans with bilateral creditors.

Chinese Foreign Minister Wang Yi on Wednesday “vowed that China will help Sri Lanka effectively address the challenges of financial debt”, according to a statement from the office of Prime Minister Dinesh Gunawardena, who was the chief guest at the ongoing China-South Asia Exhibition in Kunming, in China’s southern Yunnan Province.

Mr. Wang “vowed that China will help Sri Lanka improve its capacity for independent development, get rid of the poverty trap and the trap of non-development, accelerate its industrialisation process and agricultural modernisation.” Mr. Gunawardena, who earlier called China a “decisive global leader”, thanked the government for its “firm support” for Sri Lanka in “safeguarding its independence, sovereignty and territorial integrity, and for its timely and effective assistance” to Sri Lanka in times of difficulty, the PM’s office said on Thursday.

However, the statement did not indicate if Sri Lanka and China have reached an agreement on debt treatment, a development that Colombo keenly awaits, ahead of a crucial assessment by the International Monetary Fund (IMF) next month. An IMF team is scheduled to visit Colombo from September 14 to 27, to conduct the first review of the Extended Fund Facility (EFF) extended to Sri Lanka, according to a spokesperson of the Fund. 

While the first tranche of the EFF was disbursed soon after the IMF approved the $3-billion package in March this year, the second instalment is contingent on the Fund’s assessment of Sri Lanka’s progress on its commitments, including on debt treatment.

Sri Lanka is currently in talks with all its bilateral creditors to finalise the terms of restructuring the debt owed to them. China, the island’s largest bilateral lender, has refused to become a member of the common platform that 17 creditor countries set up in May this year to negotiate Sri Lanka’s foreign debt. While India and Japan emphasise the need for comparable terms, parity, and transparency, China continues to be an observer in the “official creditor committee”, co-chaired by India, Japan, and France.

China’s decision to stay out of the forum has made other creditors wary, according to Colombo-based official sources privy to the talks. The bilateral creditors, it is learnt, are yet to finalise the contours of their debt treatment plan, and are exploring different options including a moratorium, a longer repayment term, a partial write-off, or a combination of these measures. Sri Lanka has expressed confidence in China’s bilateral cooperation over a debt restructuring plan while assuring other creditors that the treatment will be comparable.