A broad cross-section of the international financial community is warning that Sri Lanka’s major creditors must move quickly to restructure the country’s debts or else full-scale economic collapse is inevitable.
The latest warning signal came from the Hong Kong office of Fitch Ratings which cautioned that Colombo would have to default again on a portion of its debt obligations, this time local bonds, unless the debt restructuring process speeds up.
Japanese Finance Minister Shunichi Suzuki last Friday implored Sri Lanka’s other major bilateral creditors, specifically India and China, to meet right away to discuss a restructuring deal. Japan and China each own about 10% of Sri Lanka’s external debt.
But despite Tokyo’s urgent appeal, it does not appear that either New Delhi or Beijing is keen to move quickly as neither has so far responded.
Why is the Debt Situation in Sri Lanka Different Than In Zambia?
- GEOPOLITICS: Getting China and its rivals India and Japan to agree on anything these days is difficult, and even more so under duress. China and India are both suspicious of the other’s intentions in Sri Lanka, while Beijing’s historically bitter ties with Tokyo make it politically difficult for Xi Jinping to acquiesce to any Japanese demands, especially now in the run-up to the 20th Party Congress.
- NO G20 FRAMEWORK: China likes the structure of the G20’s Common Framework (CF) that Zambia employed to restructure its external debt. This is, in part, why China also embraced Ethiopia’s debt restructuring process that will also take place as part of the CF. But Sri Lanka didn’t sign up for the CF and so there’s no formal process other than through the IMF to negotiate a settlement. This might explain, in part, Beijing’s apparent reluctance to take the lead in Sri Lanka as it did in Zambia.
SUGGESTED READING:
- The Sankei Shimbun: Aid Sri Lanka, But Ask to Eliminate China’s Influence on Military, Politics by the Editorial Board
- Reuters: Sri Lanka has an IMF deal, now it courts China and India by Marc Jones and Uditha Jayasinghe
