Head of the People’s Bank of China (PBOC) sees debt restructurings among countries such as Sri Lanka and Zambia moving ‘too slowly’ and wants creditors to agree on how to share the burden of debt relief, Bloomberg reported.
Accordingly, PBOC Governor Pan Gongsheng said that China thinks the issue of debt restructuring is important and wants creditors to agree on an approach to meeting the comparability principle in debt negotiations.
Pan Gongsheng shared the views during a closed-door meeting Friday (19) in Washington on the sidelines of the International Monetary Fund (IMF) Spring Meetings, according to the people who attended the event but asked not to be identified because the session was not for attribution.
China’s role as a major creditor to developing nations has come under renewed scrutiny as billions of dollars in loans over the past decade have soured and China, the biggest official creditor to emerging markets, has been criticised for its slow pace of engagement in debt restructurings in recent years.
A series of sovereign defaults set off by the pandemic—including Zambia, Ghana and Sri Lanka—have taken longer than expected to resolve amid disagreements among creditors on how to restructure debts.
Sri Lanka already has an agreement in principle with the EXIM Bank of China to restructure $ 4.2 billion while the country is yet to agree on a debt deal with its bondholders.
IMF officials have blamed the delays on the complexity of China’s lending and political landscapes and its financial system’s lack of alignment with more established creditors, such as the Paris Club.
The protracted debt treatments for countries that borrowed heavily from China have also raised questions about the influence of the IMF. Higher capital flows over the past decade from China and private bondholders have challenged its role as the guardian of international economics and finance.
“A key sticking point for talks between bilateral creditors like China and bondholders has been how to measure the ‘comparability of treatment’ of the relief that they provide debtors, with Beijing leading a push among official creditors for bondholders to take deeper losses on their distressed debt,” the Bloomberg report said.
“From China’s perspective, a top factor when measuring comparability of debt treatment is the so-called ‘concessionality’ of the lending,” Pan Gongsheng said. That refers to loans made at below-market or even zero interest rates which are typically offered by multilateral development banks or bilateral lenders rather than private creditors.
Source: themorning