President Ranil Wickremesinghe told Nikkei Asia that he has informed the Chinese government that all the creditors should sing from the same hymn sheet in order for Sri Lanka to recover from the economic crisis.
China, Sri lanka’s largest bilateral lender, has emerged as a formidable challenge to Wickremesinghe, and the issue is if it will to sing from the same hymn sheet as requested by Ranil Wickramasingha.
It is already known that China has taken a different approach to the country’s financial restructuring than other lenders.
“China, of course, has adopted a different approach, so it is a question of what is the agreement that the [another creditor] parties can reach with China,” said Wickramasingha
A fresh round of discussions between Colombo and International Monetary Fund representatives is to begin this week and without China’s consent for restructuring, much progress in the bailout process can’t be expected
China, Sri Lanka’s largest bilateral lender, has emerged as a formidable challenge to Wickremesinghe.
Chinese refinancing model :
China’s preferred route of refinancing its loans or deferring the repayment dates for countries in debt to Chinese banks may not be the solution for Sri Lanka at this point of time.
The IMF seems to be pushing the Wickremesinghe administration to persuade the Chinese ahead of any staff-level agreement with itself.
“Sri Lanka will have to convince the Chinese to come on board with a haircut,” said Murtaza Jafeerjee, managing director of JB Securities, a financial consultancy in Colombo. “Chinese debt [to Sri Lanka] is in dollars … and it would not be in China’s interest to be a spoiler.“
A haircut will create a loss for China but it will help to recover most of the debt.
Wickramasinghe is well aware that the Chinese decision on debt recovery will be influenced by geo-political considerations.
“The geopolitical situation [in the Indian Ocean] is heating up, but so far we have been able to keep it out and look at our [debt problem] in a purely economic manner,” Wickremesinghe said. “But there will be issues [with] how the debt is being treated and how the debt relief is to be treated. They will have some geopolitical implications.”
While Sri Lanka will have multiple limitations imposed by a hardline imposed by China in financial restructuring China will also be pressured by geo-political realities and the propaganda from the west which is labeling China as a loan shark.