The Finance Ministry on Tuesday (20) announced that the Government of Sri Lanka (GoSL) will hold a virtual presentation with its external creditors on Sri Lanka’s debt restructuring strategy today.
The statement, couched in IMF jargon further said that during the meeting the authorities (GoSL) will participate in an interactive session where participants will be given the opportunity to ask questions.
The presentation and a comprehensive ‘Q&A’ will be published on the Ministry website, post event, it further said.
These events come in the backdrop that when Sri Lanka declared itself bankrupt five months ago, in April, the biggest hurdle it had to overcome was China, one of Sri Lanka’s largest lenders, vis-à-vis debt restructuring.
This is because to obtain the US$ 2.9 billion IMF bailout package, a precondition was that there should be unanimity among all of Sri Lanka’s lenders, of which China is the biggest, of being amiable to restructure Sri Lanka’s debt, first.
In short no consensus in debt restructuring, no IMF bailout package. Paradoxically, China, after the USA and Japan, in that descending order, is the third biggest lender to the IMF.
Meanwhile, in the backdrop of China swapping the Hambantota for debt relief vis-à-vis Sri Lanka a few years ago, there were fears that China may adopt that same approach in respect of the other debt owed to it by the island as well, rather than being agreeable to restructure the country’s debt.
If China adopts such an attitude, it will scuttle the IMF bailout package of which Sri Lanka is wholly dependent upon. On the hypothesis that all creditors, barring China, discounting the fact that a US bank creditor was threatening to sue Sri Lanka for the non-payment of debt amounting to a miserly US$ 250 million, agrees to restructure Sri Lanka’s debt, then China will stick-out like a sore thumb.
In short, if such a development takes place, ‘naming and shaming’ China will ipso facto happen when the Finance Ministry, as said above in their statement, “The presentation made by the authorities/GoSL and a comprehensive ‘Q&A’ will be published on the Ministry website, post event,” which will expose China, when all other creditors are positive about debt restructuring and China is not, or chooses to remain silent.
In fact, all ‘G7’ countries, ie France, USA, UK, Germany, Japan, Italy and Canada have agreed to restructure Sri Lanka’s debt and India, another large creditor to the island has given signals that it will go the ‘G7’ way.
Therefore, the pressure is on China to also take that same route, ie of accepting ‘haircuts’, reducing borrowing costs and extending repayment tenures vis-à-vis money owed to it by Sri Lanka. A banker who told this newspaper on Wednesday that debt restructuring will be finalised by the month end, gave three reasons as to why it will happen, all revolving round China.
They were that China is among the three top lenders to the IMF; Zambia, which like Sri Lanka is bankrupt, has however found that China, which is also one of its biggest lenders, has come forward as a co-leader with France to aid Zambia to restructure its debt and the fear of the military might of Sri Lanka’s closest and giant neigbour India, which will threaten its ‘belt and road’ initiative and investments, particularly in the island, in the event it adopts hard line attitude towards Sri Lanka’s debt issue.
“In the recent past China has taken a different view in respect of debt owed to it by other countries, Sri Lanka will be no exception,” he said.
But as Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe, addressing a recent seminar, said, connected to debt restructuring, it involves two processes. One is the liberalisation of administered prices which has already happened and the other is the restructuring of State-owned enterprises led by the Ceylon Electricity Board and the Ceylon Petroleum Corporation. Restructuring here means giving management autonomy free from the whims and fancies of either the Executive or the Parliament and the other is entertaining competition. Both augur well for the common man. The sooner these are done the better, once debt restructuring is in place.