08/23/2022, 13.20
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Half of Sri Lanka's bilateral debt in Beijing's hands

by Arundathie Abeysinghe

According to official data from the Ministry of Finance, China is followed by Japan at 32% and India at 10%. The International Monetary Fund wants an agreement with the creditors to grant the short-term aid needed to tackle the crisis that has brought the country to its knees. Beijing would like to provide new loans rather than waive debt, for fear that other borrowers of Belt and Road Initiative loans will demand the same treatment.

Colombo (AsiaNews) - According to the Finance Ministry's latest official report "Sri Lanka Update to Creditors" - referring to this August - Sri Lanka's total bilateral debt amounts to 10 billion dollars. And of this bilateral debt, about 50% is owed to China, followed at a distance by Japan. It is clear, therefore, that China's position on debt restructuring will have a significant bearing on Colombo's ongoing efforts to reach an agreement with the International Monetary Fund (IMF).

Finance Ministry sources have informed AsiaNews that among Sri Lanka's debts, Japan is at 32%, India at 10%, while South Korea is at 3%, France, Germany and other countries including Australia, Sweden, Canada, Hungary, Russia and Pakistan at 2% each. Finally, the United States, Kuwait, Spain, Saudi Arabia and Iran are at 1% each.

These figures refer to the bilateral debt of the central government and that of the guaranteed state enterprises (which amounts to USD 3 billion). The average interest rate for debt denominated in foreign currency is reported at 2.9%, while it is 9.3% for debt denominated in local currency. Government debt at the end of 2021 amounted to 114% of GDP and about 47% of this debt was denominated in foreign currency.

According to sources in the Ministry of Finance, the government intends to finalise discussions with the IMF with the aim of reaching an agreement that is considered essential to 'unlock much-needed multilateral financing'. In this regard, a delegation from the financial body will be in Colombo from 24 to 31 August with the aim of making progress towards an agreement on a 'short-term' aid package to tackle the severe economic crisis. Negotiations with creditors on the treatment of the debt are also included in the scope of the restructuring. According to reports to AsiaNews by senior economic analysts, the IMF said it needed 'adequate guarantees' from Sri Lanka's creditors. 

Initially, Beijing had promised to 'play a positive role' in talks with the IMF on a possible emergency loan. However, China offered to grant further loans, instead refusing to join a process that would lead to Sri Lanka's debt relief. Behind this stance is probably the fear that other Belt and Road Initiative (BRI) borrowers, who owe Beijing tens of billions of dollars, will also demand the same treatment.

Sri Lanka's 22 million inhabitants are facing the worst economic crisis in the post-independence era. Foreign currency reserves ran out in April, causing food and fuel shortages, power outages and protests, while debt payments to China, Japan and other foreign lenders were suspended.

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