SRI LANKA Half of Sri Lanka’s bilateral debt is held by Beijing

According to official data from the Ministry of Finance, China is followed by Japan with 32% and India with 10%. The International Monetary Fund wants an agreement with creditors to grant essential short-term aid to deal with the crisis that has brought the country to its knees. Beijing would prefer to make new loans rather than forgive, fearing that other recipients of Belt and Road Initiative loans will ask for the same treatment.

Colombo () – According to the latest official report from the Ministry of Finance “Sri Lanka Update to Creditors” – referring to this month of August – Sri Lanka’s total bilateral debt amounts to 10 billion dollars. About 50% of this bilateral debt is owed to China, followed distantly by Japan. It is clear, then, that China’s position on debt restructuring will have a significant influence on Colombo’s efforts to secure a deal with the International Monetary Fund (IMF).

Sources from the Ministry of Finance explained to that in Sri Lanka’s debt, Japan has 32% and India 10%, while South Korea has 3%, France, Germany and other countries such as Australia, Sweden, Canada, Hungary, Russia and Pakistan 2% each. And finally the United States, Kuwait, Spain, Saudi Arabia and Iran each have 1%.

These figures refer to the bilateral debt of the central government and guaranteed SOEs (amounting to $3 billion USD). The average interest rate on debt denominated in foreign currency is 2.9%, while for debt denominated in local currency it is 9.3%. Public debt at the end of 2021 amounted to 114% of GDP and around 47% of this debt was denominated in foreign currency.

According to Finance Ministry sources, the government intends to conclude talks with the IMF with the aim of reaching a fundamental agreement to “unlock much-needed multilateral financing.” A delegation from the financial institution will be in Colombo for this purpose from August 24 to 31, in order to move towards an agreement on a “short-term” aid package to face the serious economic crisis. Negotiations with creditors on debt treatment are also included in the restructuring. High-level economic analysts told that the IMF has requested “adequate guarantees” from Sri Lanka’s creditors.

Beijing had initially promised to “play a positive role” in talks with the IMF over a possible emergency loan. However, China has offered to provide additional loans but has refused to join a process that would lead to the reduction of Sri Lanka’s debt. Behind this position is probably the fear that other Belt and Road Initiative borrowers, who owe Beijing tens of billions of dollars, will also ask for the same deal.

Sri Lanka’s 22 million people are facing the worst post-independence economic crisis. Foreign exchange reserves dried up in April, leading to food and fuel shortages, power outages and protests, while debt payments to China, Japan and other foreign creditors were suspended.