Japan is seeking to organise a Sri Lanka creditors’ conference in a bid to solve the South Asian nation’s debt crisis, Reuters reported, noting however that uncertainties cloud the outlook for any talks.
Citing sources with knowledge of the planning, Reuters reported on Friday August 27 that Tokyo is open to hosting talks among all the creditor nations aimed at lifting Colombo from its worst debt crisis since independence.
However, it is not clear whether top creditor China would join and a lack of clarity remains about Sri Lanka’s finances, the news agency quoted one source as saying.
Japan would be willing to chair such a meeting with China if that would speed up the process for addressing Sri Lanka’s debt, estimated at 6.2 billion US dollars on a bilateral basis at the end of 2020, the source had said.
President Ranil Wickremesinghe had told the Tokyo-based Nikkei Asia on Thursday August 24 that Sri Lanka would like China to dramatically change its stance on debt relief. The financial news website said Wickremesinghe had conceded that reaching a deal with China will be no simple task.
In an earlier interview given to Reuters, Wickremesinghe had said that Sri Lanka would ask Japan to invite the main creditor nations to talks on restructuring bilateral debts. The agency quoted him as saying he would discuss the issue with Prime Minister Fumio Kishida in Tokyo next month, when he is expected to attend the funeral of the assassinated former premier Shinzo Abe.
Tokyo, Sri Lanka’s number two bilateral creditor, has a stake in rescuing the island nation, not just to recoup its three billion dollars in loans but also its diplomatic interest in checking China’s growing presence in the region, Reuters reported.
Meanwhile, an International Monetary Fund (IMF) team met Wickremesinghe on Wednesday to discuss a bailout, including restructuring 29 billion dollars in debt, as Colombo seeks a three billion dollar IMF aid programme.
The president met the same day with Japan’s ambassador and, according to the source cited by Reuters, Tokyo believes a new “platform” is needed to pull creditors together.
“Sri Lanka is running out of time since it defaulted on its debt. The priority is for creditor nations to agree on an effective scheme,” one source said.
“Japan is keen to move this forward. But it’s not something Japan alone can raise its hand and push through,” said the source, adding that the cooperation of other nations was crucial.
The source had told Reuters that getting Beijing’s cooperation on a debt restructuring was complicated by factors such as a large number of lenders and that China was baulking at taking a “haircut” on its loans and at reducing Colombo’s debt burden.
A Chinese foreign ministry spokesman told Reuters that Beijing was “willing to stand with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka respond to its present difficulties, relieve its debt burden and realise sustainable development.”
Japan hopes to see a new debt restructuring framework resembling one set up by the Group of 20 big economies targeting low-income countries, reported Reuters. Sri Lanka does not fall under this “common framework” because it is classified as a middle-income emerging country.
“It must be a platform where all creditor nations participate” to ensure they all shoulder a fair share in waiving debt, another source said. The third said, “Until these conditions are met, it would be difficult for any talks to succeed.”
The common framework, launched by the G20 and the Paris Club of rich creditor nations in 2020, provides debt relief mainly through extension in debt-payment deadlines and reduction in interest payments.
Some people involved think an initial creditors’ meeting could be held in September, but one source said it would “take a little while, possibly several months”.
Restructuring talks are only possible after the IMF scrutinises Sri Lanka’s debt, the sources told the agency.