BY MEERA SRINIVASAN Courtesy The Hindu BusinessLine

The country faces the challenge of restructuring its foreign and domestic debt ahead of an IMF deadline.

COLOMBO  China will not join” the official creditors’ platform negotiating a common debt treatment plan with Sri Lanka, but Colombo is very confident” of Beijing’s bilateral support to the island’s economic recovery, Foreign Minister Ali Sabry said.

We are very hopeful of China’s cooperation. I was recently in China and met with the Foreign Minister, Finance Minister, and Chairman of the Exim Bank [Export-Import Bank of China]. They have said they will not come on board the common platform…but will support us bilaterally. We are very confident,” he told a media conference in Colombo on Monday.

In May this year, 17 countries that have extended loans to Sri Lanka formed an official creditor committee”, co-chaired by India, Japan, and France, to discuss Sri Lanka’s request for debt treatment, after last year’s debilitating financial crisis pushed the country to a sovereign default. 

China has attended the committee’s meetings as an observer, but its decision to stay out of the official creditors’ committee complicates the exercise for Sri Lanka, especially with other creditors repeatedly underscoring creditor equitability. While private creditors holding International Sovereign Bonds (ISBs) have the largest share of Sri Lanka’s foreign debt, China is the island’s biggest bilateral lender, followed by Japan, and India.

Issuing a statement following the first meeting of the creditors’ committee the Paris Club — an informal group of official, mostly western, creditor nations — highlighted President Ranil Wickremesinghe’s assurance of transparency and comparability of treatment for all external creditors, and that no side arrangements inconsistent with comparability of treatment” will be made with any creditor.

Reiterating Mr. Wickremesinghe’s promise, Minister Sabry said on Monday: All bilateral debt treatment will be comparable. That means no one will get anything better than the other. So, it is understood that ultimately, everybody must agree to the same kind of treatment,” he said, implying that regardless of whether China joins the creditors’ committee, or negotiates its debt treatment bilaterally with Sri Lanka, the terms will be the same.

China’s bilateral debt, the Minister said, is three-fold”, including loans from the Chinese government, the Exim bank of China and the China Development Bank. Although not part of the platform, China is taking part as an observer, that means they know exactly what is being discussed, what kind of relief is required,” he added.

Sri Lanka is racing against time to restructure both its foreign and domestic debt, ahead of the September deadline set by the International Monetary Fund (IMF), for its first review after the Fund extended a nearly $3 billion package to the debt-distressed island.

Meanwhile, the Sri Lankan parliament on Saturday approved the government’s plan to restructure its domestic debt, by recasting pension funds, a decision that has drawn a strong backlash from the political opposition and government critics.