President urges China to change tune on debt as IMF visits

Source:Dailynews

Sri Lanka is urging China to dramatically change its stance on debt relief, President Ranil Wickremesinghe told Nikkei Asia in an exclusive interview, conceding that reaching a deal will be no simple task. The appeal to China, Sri Lanka’s largest bilateral lender, has emerged as a formidable challenge to Wickremesinghe, who is leading the country’s financial team as it attempts to rebuild an economy  starved of foreign reserves and mired in misery. The effort is likely to feature prominently in a fresh round of discussions between Colombo and International Monetary Fund representatives arriving Wednesday.

“We have informed the Chinese government [of] the need to restructure [the debt] and the need for all the creditors to sing from the same hymn sheet,” Wickremesinghe told Nikkei.

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But Wickremesinghe sees a complex path to spurring a change of heart in Beijing, hinging partly on Sri Lanka’s other lenders.

China, of course, has adopted a different approach, so it is a question of what is the agreement that the [other creditor] parties can reach with China,”he said at the Presidential Secretariat, a colonial-era building that faces Colombo’s seafront.

Wickremesinghe was responding to a question about China’s preferred route of refinancing its loans or deferring the repayment dates for countries in debt to Chinese banks – rather than restructuring the loans and settling for a loss-making. An IMF statement on the eve of its visit highlighted, albeit obliquely, that the China

factor is set to shape Sri Lanka’s economic fortunes.

On the prospects for giving Sri Lanka a multibillion-dollar bailout, the fund said: “Because Sri Lanka’s public debt is assessed as unsustainable, approval by the IMF Executive Board of the [Extended Fund Facility] program would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored.”

The Washington-based fund’s team is scheduled to be in Colombo until the end of this month. Seasoned observers see it pushing the Wickremesinghe administration to persuade the Chinese ahead of any staff-level agreement with the IMF.

“Sri Lanka will have to convince the Chinese to come on board with a haircut,” said Murtaza Jafeerjee, managing director of JB Securities, a financial consultancy in Colombo. Chinese debt [to Sri Lanka] is in dollars … and it would not be in China’s interest to be a spoiler.