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Almost half of Lanka’s bilateral debt from China; Beijing’s position vital for IMF deal
View(s):Nearly half of Sri Lanka’s bilateral debt is owed to China, with Japan following at a close second, according to an official presentation to creditors prepared by the Finance Ministry.
China’s position on debt restructuring will, therefore, have a significant bearing on Sri Lanka’s efforts to secure an early deal with the International Monetary Fund (IMF).
According to the Finance Ministry’s ‘Sri Lanka Update to Creditors’ which is dated August 2022, Sri Lanka’s total bilateral debt is US$ 10bn. Some 44 percent of this at the end of last year was borrowings from China. Japan is at 32 percent and India at 10 percent. South Korea is at three percent, with France, Germany and ‘other’ (Russia, Hungary, Sweden, Canada, Australia and Pakistan) at two percent each. The rest are Saudi Arabia, the United States, Kuwait, Spain and Iran (one percent each).
This comprises Central Government as well as guaranteed State-owned enterprises (SOEs) bilateral debt (US$ 3 bn). The average interest rate of foreign currency denominated debt is given as 2.9 percent while it is 9.3 percent for local currency denominated debt. External market borrowings—international sovereign bonds—are excluded in the presentation.
Public Debt stood at 114% of GDP as at end 2021, of which 47 percent was denominated in foreign currency.
The Finance Ministry states that the Government’s next step is to finalise discussions with the IMF to reach a Staff-Level Agreement followed by a public investor presentation to update creditors on the prevailing economic situation and process. Engagement and sharing of information with creditors will continue alongside efforts to obtain financing assurances.
Reaching IMF board approval is crucial as it will “unlock much-needed multilateral financing” the presentation points out. Negotiations on debt treatment with creditors are included in the restructuring perimeter. The final step will be to execute restructuring agreements.
The IMF announced on Friday that its staff would visit Colombo from August 24-31 “to continue discussions with the Sri Lankan authorities on economic and financial reforms and policies”.
“Because Sri Lanka’s public debt is assessed as unsustainable, approval by the IMF Executive Board of the EFF [Extended Fund Facility] programme would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored,” a statement said.
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