The inception of China’s Belt and Road Initiative in Sri Lanka occurred during the tenure of Mahinda Rajapaksa. However, it was under the leadership of Ranil Wickremesinghe that Sri Lanka seized the opportunity to engage in the Chinese Belt and Road Initiative conferences. Notably, when China convened the Belt and Road Forum in 2017, Prime Minister Ranil Wickramasinghe represented Sri Lanka. During this crucial gathering, Ranil had the privilege of meeting with Chinese President Xi Jinping.
During Ranil’s visit, the foundational agreement pertaining to the lease of the Hambantota port to China was deliberated. Ranil will be representing his nation as president at the 10th anniversary conference of Belt and Road. The specific agenda of Ranil’s discussion with the Chinese president is not known. The government has conveyed that Ranil’s dialogue with the Chinese President will centre on matters related to debt restructuring.
Prior to Ranil’s departure from the event, China announced the unprecedented step of reaching a preliminary agreement to restructure Sri Lanka’s debt. This unexpected move sent ripples through surprising IMF, the Paris Club, India, Japan, and the United States. Notably this announcement by China occurred during the visit of Indian foreign minister Jaya Shankar to Sri Lanka, who had come to attend the IORA conference. India announced the first letter officially acknowledging the restructuring of Sri Lanka’s debt which coincided with the announcement of the initial instalment of the IMF fund to Sri Lanka.
China was in discomfort at that moment. China’s agreement on debt restructuring was given to the IMF after the letter from India. This time China announced the agreement reached with Sri Lanka while Jay Shankar was visiting Sri Lanka and India, Paris Club and Japan were discussing Sri Lanka’s debt restructuring. The central bank governor of Sri Lanka from Morocco said China’s statement made Sri Lanka too surprised. The reality is it does not surprise Sri Lanka.
The second in command from China Exim Bank came to Sri Lanka and met Central Bank Governor Nandalal Weerasinghe and the Finance Ministry secretary a few months ago the discussions were carried out in secret. Usually, the Central Bank’s other officials also participate in such meetings, but this meeting was with only the Governor and Secretary of the finance ministry. The central bank governor’s story that he was surprised by the announcement of the agreement reached between China and Sri Lanka regarding debt restructuring is unacceptable.
On the other hand, there is a big contradiction between the statement made by the Governor of the Central Bank regarding the Chinese announcement and the announcement issued by the Ministry of Finance in this regard. The Finance Ministry hailed China’s announcement welcomed China’s agreement with the IMF and said it was a big help to get the second instalment.
The government of Sri Lanka used India to obtain the first IMF instalment. China is being used to obtain the second instalment. It is not yet clear whether Sri Lanka is using China as it wants, or whether China is using Sri Lanka the way they want.
‘Sources close to the Debt Re-structuring Process who wish to remain anonymous have stated that the China Exim Bank – basic terms of settlement with Sri Lanka are as follows:
1. No “haircut” on capital or interest.
2. All large loans which constitute about two-thirds of all loans, to be serviced after the 2-year moratorium which finishes in April’24.
3. Balance loans to be given a further moratorium of about another 1 year, and settlement to commence thereafter.
It is not known that Ranil’s meeting with the Chinese president is to change the understanding whether it is acceptable to the other creditors.
