Japan, India to organise Sri Lanka creditors’ meeting
Japan is set to take the lead in establishing a meeting of creditor nations to promote the restructuring of Sri Lanka’s debt, Nikkei has learned.
The setup could serve as a precedent for solving middle-income nations’ debt problems, exacerbated in part by higher interest rates in the U.S. and Europe.
Japanese Finance Minister Shunichi Suzuki and senior officials from India and France will participate in the inaugural event. Sri Lankan President Ranil Wickremesinghe is expected to take part online.
In addition, the International Monetary Fund, World Bank and other international organizations as well as the private sector will participate in the debt restructuring discussions. The timing of the first meeting will be coordinated by the parties concerned.
Sri Lanka’s mainstay tourism income plummeted after the coronavirus pandemic all but halted global travel. Unable to repay infrastructure funds borrowed from China and other countries, the nation fell into default last May.
China as of last June held 52% of Sri Lanka’s bilateral debt. Japan was the second largest creditor, at 20%, followed by India at 12% and France at 3%.
China has been reluctant to reduce or forgive Sri Lanka’s debt. As a result, the debt restructuring has been delayed. However, China did offer assurances in March that it would work out debt treatment for Sri Lanka in the coming months, allowing the South Asian island to secure a crucial $2.9 billion bailout from the IMF.
China’s decision about whether to participate in the multilateral discussions is now a focal point.
In 2020, the Group of 20, made up of industrial and emerging-market nations, introduced a common framework to address emerging economies’ debt problems. The framework allows for partial debt forgiveness under the leadership of the IMF and other organizations, but only low-income countries are eligible.
Emerging economies are experiencing severe pain from today’s high prices, brought on by the pandemic and Russia’s invasion of Ukraine. According to the World Bank, emerging economies at the end of 2021 had external debt of $9 trillion, more than double the level of 10 years earlier.
The debt crisis has spread beyond low-income countries, with Sri Lanka becoming the first middle-income country to default since the spread of the coronavirus. If Sri Lanka’s default is resolved through the new framework, it could serve as a model for future debt restructuring.
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