ECONOMYNEXT – China will be treated equal to all other external creditors and will not be given any preferential treatment when Sri Lanka carries out its debt restructuring, the island nation’s Central Bank Governor Nandalal Weerasinghe said on Friday (29).

Sri Lanka on April 12 announced that it was suspending all foreign debt repayments as it had run out of foreign currency reserves and it will be restructuring all its external debts.

A Sri Lankan delegation led by Finance Minister Ali Sabry including Weerasinghe held talks with the International Monetary Fund (IMF) on its plans for debt sustainability while requesting an IMF funding to overcome the financial crisis.

China was in discussion with Sri Lanka on lending a 1 billion US dollar to repay existing Chinese loans due in July and another 1.5 billion US dollar credit line to purchase goods.

Chinese Ambassador to Colombo this week said the discussions have been temporarily halted as Beijing was waiting to see the outcome of the IMF talks on debt restructuring.

China has openly told Sri Lanka that it is not in favour of debt restructuring as it will have to do the same to other debtors, Colombo government officials have said.

“All the external creditor will be treated equally. There is no question about that. India, China, Paris Club, Non Paris Club all will be treated on the same basis,” Weerasinghe told reporters in Colombo. 

“It is unfair by others if we are going to treat somebody with preferential treatment and others won’t come on board,” he said.

“We do not repay any loans now. We will be starting repaying only once we reach consensus on the debt repayments. If one party delays, then we won’t be able to start repayment.”

China has lent over 5 billion US dollars to Sri Lanka mainly for infrastructure projects amid allegations by the West and India that China has dragged Sri Lanka into a debt trap by financing big infrastructure projects which do not generate revenue.

However, Sri Lanka President Gotabaya Rajapaksa has said China has never created a debt trap while Beijing has maintained its lending to Colombo accounts for around 10 percent of the total external debt.    

Cabinet Spokesman Nalaka Godahewa this week said Sri Lanka will discuss with China on the issue and hopeful that Beijing would consider the current crisis as a special circumstance. 

Weerasinghe said once the restructuring is announced with the basis of equal treatment, creditors can negotiate with Sri Lanka if they have concerns. 

“Once we announce that we are going to treat them equally, then our part is done. The creditors will have to negotiate with us on that basis,” he said.

“We have made it very clear. If we offer a concession to one creditor, then we have to give the same concession to all the creditors. Otherwise it won’t happen.” (Colombo/April29/2022)