China’s commitment to supporting Sri Lanka’s debt restructuring in line with other bilateral creditors is a major step towards securing a rescue package from the International Monetary Fund.
However, it’s still unclear how negotiations will proceed, as the country suffers from food and drug shortages while waiting for a $2.9 million IMF rescue program. The next step is for Sri Lanka to formulate a concrete debt restructuring plan, to be submitted to the IMF.
China’s new stance on Sri Lanka is raising hope for stalled debt relief processes in countries like Zambia. But analysts urge caution: “It is hard to see whether this is a change in Chinese (or Indian, for that matter) policy towards sovereign restructuring deals going forward or a one-off for this case. My guess: the latter,” said Mitu Gulati, a law professor at Duke University.
- ETHIOPIA: An IMF loan to Ethiopia “is definitely back on the table,” said the ratings agency S&P. This will be an important first step towards restructuring the country’s $26 billion in external debt. The process has stalled for about two years, held back in part by Ethiopia’s civil war. (BLOOMBERG)
- GHANA: President Nana Akufo-Addo said Ghana’s request for debt relief will be submitted to the IMF executive board by the end of the month. Ghana got a staff-level approval for a $3 billion extended credit facility, but the final approval depends on restructuring $47.6 billion in debt. (REUTERS)
- ZAMBIA: While Zambia got an IMF board approval for a $1.3 debt relief program, the restructuring process is facing an uphill battle. Both bilateral and commercial lenders are raising objections to the IMF’s debt sustainability analysis. The World Bank estimates Zambia’s current external debt at about $24 billion. (REUTERS)
WHY IS THIS IMPORTANT? China has tended to pursue debt renegotiations on a case-by-case basis, and framing the Sri Lanka agreement as a precedent for other cases could be premature.
SUGGESTED READING:
- Bloomberg: S&P Global Sees Ethiopia IMF Deal Within Reach, Paving Way for Debt Relief by Samuel Gebre
- Reuters: Ghana’s loan programme request to go to IMF board by end March – president by Cooper Inveen and Christian Akorlie
