BEIJING ā China expressed support for Sri Lanka ahead of a meeting Friday of government lenders to poor economies but did not say if it would help reduce a multibillion-dollar debt that has plunged the Indian Ocean nation into financial and political turmoil.
Beijing is one of Sri Lanka's biggest creditors after extending it loans under President Xi Jinpingās Belt and Road Initiative, which expands trade by building ports and other facilities across Asia and Africa. China has offered a two-year suspension of repayments but balked at reducing the amount owed. That is an obstacle to obtaining an emergency loan from the International Monetary Fund, which wants creditors to agree to debt reductions.
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Chinese officials are due to attend a meeting of lenders organized by the IMF and the Paris Club of government creditors. The IMF's managing director, Kristalina Georgieva, said last month the agency was talking with Beijing about ways of āreducing the burden of debt.ā
The Paris Club, after announcing last week its assurances on working with Sri Lanka, said, āThe Paris Club members as well as Hungary and Saudi Arabia urged other official bilateral creditors, including China, to do the same in line with IMF program parameters as soon as possible.ā
China accounts for about 10% of Sri Lankaās $51 billion foreign debt. The island nation of 22 million people ran out of foreign currency last year. That triggered power cuts, food shortages and protests that forced a president and prime minister to resign.
China is āwilling to work with relevant countries and international financial institutions to continue to play a positive role to help Sri Lanka get over current difficulties,ā Foreign Ministry spokesperson Wang Wenbin said when asked whether Beijing would agree to a debt reduction.
Wang repeated an earlier official statement saying that China supports Sri Lankaās application for an IMF loan and would help its government ask for help from commercial and other creditors.
The China Export-Import Bank last month offered Sri Lanka a two-year repayment suspension. An American official said that was too little and called on Beijing to offer more relief.
āWe are in direct discussions with China," Sri Lankan President Rani Wickremesinghe said last week in a speech to Parliament. āWe are now working towards unifying the approaches of other countries and that of China.ā
Sri Lankaās situation reflects conditions across dozens of countries, from South Pacific islands to some of the poorest in Asia and Africa, that borrowed under the Belt and Road Initiative. The total debt of poor countries is rising, increasing the risk that others might also run into trouble.
Beijing has forgiven interest owed by some but has avoided writing down the amount borrowed.
Economists say Beijing probably is resisting cuts to Sri Lankaās debt for fear that other borrowers will want similar relief. Last April, then-opposition leader Wickremesinghe told Republic TV that China offered an additional $1 billion loan instead of reducing Sri Lankaās debt. That would allow the government to make payments, but the total amount owed would rise.
Georgieva said IMF officials who visited Beijing discussed with Chinese officials a āpathway for debt reductionā for Chad, Zambia, Sri Lanka and other struggling debtors.
A āvery broadly sharedā notion in China is that the country wants to help but āthey expect to be paid back,ā Georgieva said.
That makes a reduction in the amount borrowed āpolitically very difficult,ā Georgieva said. But she said there āmight be a way to reach the same objectiveā by changing interest rates or repayment terms.
Sri Lanka is trying to complete negotiations by the end of March, government spokesperson Bandula Gunawardena said Tuesday. Gunawardena said the IMF has concluded that Chinaās offer of relief āis not sufficient.ā
"I hope the IMF will, by March, be able to ensure that the debt restructuring can begin,ā Wickremesinghe said Wednesday.
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Mallawarachi reported from Colombo, Sri Lanka.