Lenders could delay Lanka bailout, president warns

COLOMBO: A possible International Monetary Fund bailout for Sri Lanka could be delayed if its creditors – the biggest being China – do not agree on concessions, the country’s president warned on Friday.

Crucial debt restructuring – with countries it owes billions agreeing to write off some of their debts – is a precondition before the IMF approves a bailout for the country, where inflation is rampant and widespread shortages of essential commodities.

“Until you reach an agreement between official creditors, it is not possible to go to the London Club,” Ranil Wickremesinghe told a forum, referring to subsequent debt talks with lenders commercial.

President Wickremesinghe did not name a single country, but analysts said he was referring to China, the largest single bilateral creditor, which holds more than 10% of Sri Lanka’s external debt.

Officials say reaching a deal with Beijing is crucial, but China has not publicly abandoned its offer of additional loans rather than taking a haircut on existing credit.

The IMF is likely to insist on painful reforms as part of any bailout, and Wickremesinghe warned: “It may be bitter, but any medicine for recovery is bitter. You have to do injections.

Previous presidents, including his immediate predecessor who fled overseas and resigned last month, have borrowed heavily from Beijing for infrastructure projects, most of which have become white elephants.

Analyst Victor Ivan said the debt talks could be exploited by Beijing to extract concessions in the South Asian country, which has emerged as a geopolitical hot spot.

Unable to repay a $1.4 billion loan, Colombo handed over a Chinese-financed and built deep-sea port to a Beijing firm in 2017 on a 99-year lease.

“China has done it in the past, but doing it so openly now could backfire because of the circumstances in Sri Lanka,” Ivan said.

Beijing has publicly offered Colombo more loans to pay off its debt to China, a move not acceptable to other creditors who want all lenders treated equally.

“China’s debt renegotiation could be a sticking point,” said former Central Bank of Sri Lanka Deputy Governor WA Wijewardena. “We will have to negotiate hard with them.”

The United States appeared to be pushing Sri Lanka’s creditors to come to an agreement on their debts.

On the sidelines of an ASEAN meeting on Thursday, US Secretary of State Anthony Blinken said an IMF bailout “requires appropriate debt restructuring which must be done on an equitable basis, with all creditors doing so. which is necessary”.

Sri Lanka defaulted on its $51 billion foreign debt in mid-April and requested talks with the IMF.

The country has also borrowed heavily from India this year to combat fuel shortages. Delhi has yet to declare its position on the restructuring.

Posted in Dawn, August 6, 2022

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