China becomes a focal point in resolving Sri Lanka’s finances

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As the official presentation to creditors prepared by the Finance Ministry is been put together it has emerged that Nearly half of Sri Lanka’s bilateral debt is owed to China. However Japanese lending is a close second with thirty-two percent of Sri Lankan loans being of Japanese lending.

China’s position on debt restructuring will be crucial as approximately forty-four percent of the loans are from China.
Challenge to IMF
China does not usually recently restructure its loans as it does not want to create a precedent, however in this instance if china does not agree to significantly restructure Sri Lanka’s loans it will be very difficult for the IMF to work out a bailout package.
As Sri Lanka has about seventy percent of its loans from China and Japan the loans obtained from other countries are significantly lower.

South Korea’s lending is three percent while France, Germany, Russia, Hungary, Sweden, Canada, Australia, and Pakistan have two percent of the loan share while  Saudi Arabia, the United States, Kuwait, Spain, and Iran have a share of one percent each.
External market borrowings—international sovereign bonds—are excluded in the presentation and have not been taken into account while calculating the figure of US ten billion of existing loans.
Public debt is assessed as unsustainable

Public Debt stood at a staggering 114% of GDP by at end of 2021, of which 47 percent was denominated in foreign currency.

The discussions with the IMF to reach a Staff-Level Agreement are not going to be easy as the gaps in Hugh and Sri Lanka’s public debt is assessed as unsustainable.

The  IMF Executive Board of the EFF [Extended Fund Facility] program would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored,”  which is certainly something that could not be obtained easily.

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