The Paris Club is waiting for China to commit to Sri Lanka’s debt overhaul before notifying their assurance that is needed to unlock a $2.9 billion International Monetary Fund bailout, according to people with knowledge of the matter.
(Bloomberg) — The Paris Club is waiting for China to commit to Sri Lanka’s debt overhaul before notifying their assurance that is needed to unlock a $2.9 billion International Monetary Fund bailout, according to people with knowledge of the matter.
Major members of the informal group — comprising mostly rich, western bilateral creditors — favor giving financial assurances, but are waiting for Beijing to be on board to move ahead, said the people, who asked not to be identified as the details aren’t public.
Since Sri Lanka defaulted in May, creditors have been going back and forth on the size of losses they are willing to accept and whether local debt should be included in the restructuring. A breakthrough came when India gave its debt assurances on Monday.
When reached for comment Thursday, a Paris Club spokesman referenced a September statement that said the group is willing to work with other creditors to provide the necessary financing assurances in a timely manner and ensure fair burden sharing.
“We felt strongly that Sri Lanka’s creditors must take proactive steps to facilitate its recovery,” Indian Foreign Minister Subhrahmanyam Jaishankar said in Colombo on Friday. “India decided not to wait on others but to do what we believe is right,” he said.
India also extended financing assurances to the IMF to “clear the way for Sri Lanka to move forward,” Jaishankar said. New Delhi’s expectation is that this will not only “strengthen Sri Lanka’s position,” but ensure that all bilateral creditors are dealt with equally, he added.
An IMF bailout will give Sri Lanka much-needed funds to mend an economy that has fallen deeper into recession with sky-high inflation and elevated borrowing costs. The island nation, which has fulfilled certain preconditions for the funding, is now aiming for board approval from the multilateral lender in the first quarter of 2023.
In a bid to expedite negotiations, Sri Lanka’s government is said to have considered including a special clause in its debt-restructuring proposal to assuage doubts among other creditor nations that China — which holds 52% of the nation’s bilateral debt — could be offered better terms. Private creditors own almost 40% of the country’s overall external debt.
President Ranil Wickremesinghe has said recently that authorities have concluded debt restructuring talks with Japan and negotiations with China and India “are successful.” He didn’t elaborate.
The country is expecting financing assurances from China in the near future, which could lead to an agreement with the IMF, state finance minister Ranjith Siyambalapitiya told reporters in Colombo Friday. He gave no time-line.
–With assistance from Asantha Sirimanne, Samuel Gebre and Sudhi Ranjan Sen.
(Updates with Jaishankar comments in fifth paragraph)
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