Japan, India and France have announced a common platform for talks among bilateral creditors to coordinate the restructuring of Sri Lanka’s debt, a move they hope would serve as a model for solving the debt woes of middle-income economies.
It remains uncertain, however, whether Sri Lanka’s biggest bilateral creditor – China – will join the initiative launched by Japan, this year’s G7 chair, with the aim of kicking off a series of meetings among Sri Lanka’s creditors.
“To be able to launch this negotiation process, gathering such a broad-based group of creditors, is a historical outcome,” Japanese Finance Minister Shunichi Suzuki told a briefing on Thursday.
“This committee is open to all creditors,” he said, voicing hope China would join in the effort.
French Director General of the Treasury Emmanuel Moulin told the briefing the group was ready to hold the first round of talks “as soon as possible”.
Sri Lanka’s central bank governor told Reuters news agency earlier this week that having a single platform for talks would be a welcome move that would make it easier to discuss and share information.
“I hope the creation of this platform will become a model case” for debt restructuring of middle-income countries, Suzuki said.
Japan’s top currency diplomat Masato Kanda told reporters the group has sent an invitation to all of Sri Lanka’s bilateral creditors, including China, and hopes to hold the first round of talks at the earliest date possible.
“The beginning of a coordinated effort… to address Sri Lanka’s distress means we have made a critical policy adjustment” with the International Monetary Fund (IMF), said Sri Lanka’s President Ranil Wickremesinghe, who is also the finance minister, via video conference.
The island nation of 22 million people last month secured a $2.9bn programme from the IMF to tackle its huge debt burden. But the middle-income economy could not apply for relief under the G20’s common framework for debt treatment, which targets only low-income countries.
That has put the onus on big economies to come up with an alternative scheme, leading to the creation of the new platform.
Sri Lanka owes $7.1bn to bilateral creditors, according to official data from its government, with $3bn owed to China followed by $2.4bn to the Paris Club and $1.6bn to India.
The government also needs to renegotiate more than $12bn of debt in Eurobonds with overseas private creditors and $2.7bn on other commercial loans.
Sri Lanka kicked off talks to rework part of its domestic debt this month and aims to finalise the deal by May.