The debt relief reiterated by China to Sri Lanka last week still falls short of overall burden on the latter, according to analysts.
China’s Foreign Ministry Spokesperson Mao Ning’s during the regular briefing on Friday reiterated the announcement by Export-Import Bank of China on 19 January. As the official bilateral creditor, EXIM Bank of China provided a financing support document to the Ministry of Finance, Economic Stabilisation and National Policies of Sri Lanka, saying it is going to provide an extension on the debt service due in 2022 and 2023.
This meant Sri Lanka will not have to repay the principal and interest due of EXIM Bank’s loans during this period “so as to help relieve Sri Lanka’s short-term debt repayment pressure.”
The spokesperson said the EXIM Bank would like to have friendly consultation with Sri Lanka regarding medium ─ and long-term debt treatment in this window period and the Bank will make best efforts to contribute to the debt sustainability of Sri Lanka.
The Bank also noted that it will support Sri Lanka in its loan application to the IMF.
EXIM Bank said it will continuously call on commercial creditors (including the International Sovereign Bondholders) to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make corresponding contributions.
Experts and analysts opined that EXIM Bank’s outstanding debt is only $ 4,023 million whereas Sri Lanka owes a further $ 3,000 million to China (see table) including $ 2,950 million to China Development Bank (CDB).
As per data released by the Ministry of Finance, Economic Stabilisation and National Policies as at end September 2022, debt outstanding including unpaid principal for China is $ 4,678 million and separately $ 2,190 million as term financing facilities categorised under commercial debt primarily from CDB.
“Ideally China, if it wants to live up to what it claims to be to Sri Lanka, should give a broader expression of support in terms of debt relief,” analysts argued and pointed to the more comprehensive stance by India. Others opined that Sri Lanka will have to deal separately with CDB since it is categorised under “Commercial” creditors.
However Foreign Ministry Spokesperson Ning on Friday stressed that China is the first official bilateral creditor to have taken the initiative to announce debt extension to Sri Lanka. “This speaks to China’s sincerity and action to support Sri Lanka’s effort to achieve debt sustainability,” she added.
“As we have said several times, as a friendly neighbour and true friend, China has been providing assistance for Sri Lanka’s economic and social development to the best of our capabilities. The financing support document is aimed at combining an “immediate contingency measure” and ‘medium ─ and long-term debt treatment’ to rapidly, effectively and truly resolve Sri Lanka’s debt issue,” she said.
China also called on all other creditors of Sri Lanka, especially multilateral creditors, to take synchronised, similar steps and give effective, strong support to Sri Lanka to help the country emerge from its default status at an early date and eventually work out an arrangement for Sri Lanka to achieve medium ─ and long-term debt sustainability.
China called on the IMF to take into full consideration the urgency of the situation in Sri Lanka and provide loan support as soon as possible to relieve the country’s liquidity strain.
“Going forward, China will continue to support relevant financial institutions in actively working out the debt treatment. We will work with relevant countries and international financial institutions to jointly play a positive role in helping Sri Lanka navigate the situation, ease its debt burden and achieve sustainable development,” Foreign Ministry Spokesperson Ning added.
India, the third largest bilateral creditor with $ 1.65 b due as of September 2022, was the first bilateral creditor to issue financial assurance in mid-January. India said it will support medium-to-long-term debt treatment through maturity extension and interest rate reduction or any other financial operations that would deliver similar financing/debt relief.
Last week US Under Secretary of State for Political Affairs Victoria Nuland in Colombo stressed that China needs to provide more credible and specific assurances on its readiness to join other Sri Lanka creditors in meeting IMF standards on debt restructuring.
“All Sri Lanka’s major creditors have been working with the IMF. As the largest bilateral creditor, we expect China to provide credible and specific assurances regarding its readiness to join the rest of us in meeting IMF standards regarding debt restructuring,” she said.
“The US is prepared to do our part and our Paris Club partners are ready to do their part. India has made strong commitments it will provide the credible assurances that the IMF is looking for. What China has offered so far is not enough,” added Nuland in response to questions raised by journalists.
In an apparent retaliation, Chinese Foreign Ministry Spokesperson Ning said: “Rather than jabbing fingers at China’s close cooperation with Sri Lanka, the US might as well show some sincerity and actually do something to help Sri Lanka weather through the current difficulties.”
“What was said by the US side does not reflect the truth. The Export-Import Bank of China has already provided Sri Lanka with the letter to express support for its debt sustainability. Sri Lanka has responded positively and thanked China for that,” Ning said responding to journalists at a regular press conference last week.
“China stands ready to work with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka navigate the situation, easing its debt burden, and helping it achieve sustainable development,” the Chinese Foreign Ministry Spokesperson added.
Sri Lanka owes $ 4.17 billion to Paris Club members as of September 2022. It amounts to 38.5% of $ 10.8 billion total outstanding to bilateral creditors with the balance $ 6.6 billion held by Non-Paris Club countries including China and India. Sri Lanka also owes $ 14.7 billion separately to commercial creditors
Sri Lanka Central Government external debt as at September 2022 was $ 35 billion comprising $ 14.7 billion as Commercial (of which $ 12.5 billion is ISBs), $ 10.8 billion as bilateral and $ 9.5 billion as multilateral.