China, Colombo's largest bilateral lender, may disagree with Western creditors on Sri Lanka's 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 finalize 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, reported Sunday Islands Online.
Earlier, China had dodged the request for debt relief and said that the ball is in Sri Lanka's court. A spokesman for the Chinese embassy said that the ball is in Sri Lanka's court, not China's, reported Sri Lankan publication Daily Mirror.
"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.
The spokesman told Daily Mirror China communicated to the Sri Lankan Finance Ministry three months ago about its readiness to discuss how to address the debt issue with the Chinese banks.
He said China encouraged its banks to discuss it. The Chinese position was also communicated during the telephone conversation between Chinese Premier Li Keqiang and then Sri Lankan Prime Minister Mahinda Rajapaksa.
Sri Lanka has already hired financial and legal advisory firms Lazard and Clifford Chance LLP to support its debt restructuring as the country is on the brink of bankruptcy. Lazard has been the legal adviser in Zambia's debt restructuring where creditors included China, reported Sunday Islands Online.
The Paris Club of Western nations has a well-defined unified process for dealing with defaulted nations, which is familiar to the IMF.
"Sri Lanka is in a special situation that much of its official debt is outside of Paris Club creditors," Breuer said.
"It is important to move expeditiously. We want to avoid the crisis from becoming worse," he added.
( With inputs from ANI )
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