After months of delays and obfuscation, the China Exim Bank suddenly and unexpectedly reversed course this week and agreed to fully support Colombo’s debt restructuring plan.
President Ranil Wickremesinghe broke the news on Tuesday when he told parliament that China Exim would join India and Paris Club creditors to provide “specific and credible” financing assurances that met the IMF’s prerequisites for a $2.9 billion emergency financial package.
Details of the updated offer have not been released but whatever they said was apparently enough to satisfy IMF Managing Director Kristalina Georgieva who commended the Sri Lankan government for taking “decisive policy actions and obtaining financing assurances from all their major creditors.”
It’s clearly an improvement over China Exim’s January proposal to defer repayments on $2.83 billion of loans by just two years, significantly less than the 10+ year offer provided by India and other creditors.
That January proposal also didn’t mention what would happen to the rest of the estimated $7.4 billion owed to other Chinese creditors.
Now, it appears those concerns have been resolved.
But after months of holding up Sri Lanka’s debt restructuring process with demands that commercial creditors and multilateral development banks agree to take losses on their loans, many analysts are now wondering why Beijing suddenly changed course.
Other than a generic announcement on Twitter by the embassy in Colombo, Chinese officials have not provided any further comment.
Then, of course, the other pressing question is whether or not the breakthrough in Sri Lanka means that Beijing will be equally accommodating in Zambia, where the Chinese have also been blamed for stalling the debt relief process.
Why Now? What Prompted the China Exim Bank to Compromise?
- THE TWO SESSIONS: The timing of the announcement came during China’s annual legislative meetings, where Global South debt relief was a much more prominent issue than in previous years. It’s possible that Beijing regarded the Sri Lanka situation as a complicating factor for that narrative.
- GREAT POWER RIVALRY: It’s always important to remember that for a $17 trillion economy, a few billion dollars of debt is trivial. This stand-off has never been about the money, instead the Chinese are using this issue to challenge many of the longstanding norms in international development finance governed by the U.S. and Europe. It’s possible, though, that Beijing recognized they were losing the PR battle in Sri Lanka and ceding ground to rivals in Washington, New Delhi and Tokyo.
- THE QIN GANG FACTOR: While the Ministry of Foreign Affairs is traditionally one of China’s weaker ministries, especially compared to Commerce, Finance and State Security, the timing of the announcement one day before Foreign Minister Qin Gang’s first press conference at the National People’s Congress has to be considered as a factor. It’s possible that Qin lobbied for this move to strengthen his push-back against accusations of predatory lending at Tuesday’s press conference.
SOME CAUTIONARY ADVICE: It may be tempting for governments of other highly-indebted countries to see what happened in Sri Lanka as a precedent that will also apply to their own appeals for timely debt relief. This may be premature.
Until now, China has insisted on engaging in secretive bilateral debt restructuring negotiations rather than applying precedents from one country to other cases.
WHY IS THIS IMPORTANT? This is a major breakthrough and even though we don’t fully understand China’s motivations, it nonetheless brings an end to a painful impasse and provides hope that compromise is possible in other countries.
SUGGESTED READING:
- Reuters: Sri Lanka closes in on $2.9 bln IMF deal after China support by Uditha Jayasinghe and Andrea Shalal
- Financial Times: Sri Lanka’s IMF deal edges closer as China backs debt restructure by Benjamin Parkin, Mahendra Ratnaweera & Jonathan Wheatley
