Lanka crisis would deepen if creditors disagree, IMF says

Sri Lanka’s debt restructuring may differ with Western creditors on the debt restructuring. A senior International Monetary Fund (IMF) official said that Sri Lanka’s ongoing economic crisis would deepen if China disagrees on debt restructuring, reported Sunday Islands Online.

If one creditor or creditors are not willing to provide these assurances, that would indeed deepen the crisis here in Sri Lanka and would undermine the repayment capacity, “Peter Breuer, senior IMF mission chief, told reporters in Colombo when asked what if China does not agree on a debt restructuring plan. He said that China would not go along with Western creditors on debt restructuring on an equal footing.

“So a deepening crisis means that essentially the resources available to service the debt would become less,” said Breuer at the media briefing after concluding a nine-day visit to finalise the staff-level agreement and a loan package for Sri Lanka’s reforms. All Sri Lankan creditors, including China, have to agree to restructure their existing loans to the island nation before the IMF starts disbursing a 2.9 billion US dollar loan on which preliminary agreement was announced on Thursday. “So it is actually in the interest of all creditors to collaborate together and with Sri Lanka so that Sri Lanka can emerge from this crisis as quickly as possible and regain its repayment capacity and service this new debt that will come out of these debt negotiations,” added Breuer. Notably, China has so far not agreed to debt restructuring, which could include haircuts or reductions in interest rates. Instead, China has expressed its willingness to refinance Sri Lanka to repay its past loans without any changes, said Lankan officials, reporting to Sunday Islands Online. Earlier, China had dodged the request for debt relief and said that the ball was in Sri Lanka’s court.

According to the Sri Lankan newspaper Daily Mirror, a spokesman for the Chinese embassy stated that the ball is in Sri Lanka’s court, not China’s. “We sent proposals to the Finance Ministry. but there was no response from them. Also, Sri Lanka insisted that it should complete the agreement with the International Monetary Fund (IMF) first. The ball is in Sri Lanka’s court, “the spokesman said.