China factor to impede bilateral debt restructure amidst tough DDO issues
Sri Lanka debt restructuring process is now underway with the aim of completing it by September this year but the China factor seems to impede bilateral creditor negotiations and the failure to secure political support may disrupt domestic debt rework or optimisation (DDO), official sources said.
Chinese creditors are not in favour with participation in discussions on a common platform. “But they are negotiating as bilateral creditors, with the knowledge of the parameters of the negotiation,” a former deputy governor of the central bank who was closely associated with previous IMF negotiations told the Business Times.
He noted that there was a possibility that the Chinese government may consider restructuring loans where it expects minimal economic and political costs.
In this context the China Exim Bank which has already given two year debt moratorium for Sri Lanka is likely to agree to restructure US$3 billion out of $4.3 billion project-specific lending to the country.
Sri Lanka owes US $7.1 billion to bilateral creditors, with $3 billion owed to China, $2.4 billion to the Paris Club and $1.6 billion to India, according to Finance Ministry official data.
Under this backdrop, the DDO is being carried out consistent with the extended fund facility, to contribute to meeting the Debt Sustainability targets agreed upon with the IMF, finance ministry sources said.
Some creditors may try to use their political influence to protect themselves from burden-sharing, thereby shifting the burden of the adjustment to other creditors. But relying on voluntary mechanisms may help boost participation in the restructuring by lowering the relief sought from each creditor group.
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