Chinese loans to Sri Lanka account for about 10 per cent of the country’s total debts and China could even provide fresh loans for Sri Lanka to settle the debts.
Sri Lanka has embarked on discussions with China on debt treatment following earlier talks with the International Monetary Fund (IMF), according to Sri Lanka’s Mass Media Minister Nalaka Godahewa.
The discussions centre on how Sri Lanka proceeds with servicing its debts following a suspension of payments.
Having provided credit to the tune of USD 3.5 billion, China remains Sri Lanka’s biggest creditor.
Chinese loans to Sri Lanka account for about 10 per cent of the country’s total debt. The issue of sovereign bonds accompanying the debts concerns many in Sri Lanka who feel that the debt trap accrues from Chinese providing cut rate loans at a time when the country faced huge foreign exchange shortages, especially after printing huge volumes of currency.
China even gave an eight-year loan at around 5.35 percent with 3-year grace beating all commercial lenders in 2018.
“The Chinese have said they will give a fresh new loan to settle the debts. For us it is not a problem, but we do not know what the West would say,” Minister Godahewa told Colombo based foreign correspondents late Sunday.
The West is a euphemism for the International Monetary Fund (IMF) that wants Sri Lanka to tighten its monetary policy, raise taxes and adopt flexible exchange rates.
This is a dilemma the Sri Lankan government must resolve because the Chinese are not keen on re-structuring debt as required under IMF agreement, the minister said.
Same position in January
Earlier in January, Sri Lanka Central Bank’s former Governor, Nvard Cabraal had initiated negotiation of a new loan to make loan repayments to due to China. This followed President Gotabaya Rajapaksa asking the Chinese foreign minister for debt assistance.
“We have an understanding that they would assist us in making the repayments in that form,” the former Governor of the Sri Lankal Central Bank had said then. “So maybe there is a possibility that we would have a new loan coming in order to cushion our debt repayments to China itself.”
Minister Godahewa said pretty much the same thing in his interaction with foreign correspondents on Sunday “They say you cannot have a different methodology for Chinese loans. Otherwise the principle is the same (extending the tenor),” the minister said, adding that, “The Chinese are not yet, as I understand it, willing to re-structure the debt. They have done it for some countries under very special relationships.”
Economists in the country say that heavy borrowing by the Sri Lankan regime through international sovereign bonds, has now led to the country scrambling for ‘bridging finance’ for import consumption while simultaneously seeking haircuts from lenders.