China’s pledge to support Sri Lanka’s debt reorganization, a major step for the island nation in securing an IMF lifeline, provides little clarity on how negotiations will unfold or whether this could herald progress for other heavily indebted nations.
Analysts remain cautious on how significant China’s new commitment will be for the country, whose 22 million people urgently need funds from the $2.9 billion International Monetary Fund programme amid shortages of food, fuel and medicines.
Cash-strapped nations such as Zambia and Ghana are also facing talks on reworking debt with Chinese lenders, and Sri Lanka’s negotiations showed that international efforts to standardize some debt rework parameters are failing. China is the biggest bilateral creditor to Sri Lanka, which defaulted on its international debt last year.
The Export-Import Bank of China (EXIM) told Sri Lanka in a letter that it will try to expedite debt talks in the months ahead, in addition to a two-year moratorium secured previously.
The bank also clarified that financial negotiations should remain “between our two sides.”
“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 in the U.S.
While Sri Lanka is not part of the Group of 20’s Common Framework debt platform due to its middle-income status, this approach could jeopardize bilateral creditors’ efforts to restructure debt in comparable terms. The Paris Club of creditor nations and India have previously provided financing assurances.
Source : Reuters