SRI LANKA is optimistic about reaching an agreement soon with bondholders to restructure about $12 billion (£9.54bn) in debt, a top official said on Monday (1), a big step that will help the island nation emerge from its worst financial crisis in decades.
China, the world’s and Sri Lanka’s biggest sovereign creditor, pledged to support the island nation to take forward its debt restructuring plan during Sri Lankan prime minister Dinesh Gunawardena’s visit to Beijing last month.
Sri Lanka held talks with bondholders in London last week. “We are optimistic we will come out with a positive outcome,” state finance minister Shehan Semasinghe said, without elaborating.
Sri Lanka secured a $2.9bn (£2.3bn) bailout from the IMF in March last year, helping it temper inflation, increase state revenue and rebuild foreign exchange reserves.
Gunawardena said China would “assist” Sri Lanka’s restructuring of external debt, a key condition to maintaining the $2.9bn IMF bailout.
Beijing’s position on debt restructuring has not been made public, but Sri Lankan officials said China was reluctant to take a haircut on its loans, but could extend the tenure and adjust interest rates.
Gunawardena’s office said premier Li Qiang had promised China would “assist Sri Lanka’s debt restructuring process continuously and help Sri Lanka to develop its economy”. Beijing offered “assistance to develop” Colombo International Airport and Hambantota port, a statement from Gunawardena added.
A Japanese-funded expansion of Colombo airport had been on hold since Sri Lanka’s sovereign debt default.
The southern sea port of Hambantota was handed to a Chinese state-owned company in 2017 on a 99-year lease for $1.12bn (£890 milion), sparking security concerns in India.
India and the US are both concerned a Chinese foothold at Hambantota could boost its naval advantage in the Indian Ocean. Sri Lanka insisted its ports will not be used for any military purposes, but New Delhi has objected to Chinese research vessels calling at Hambantota fearing that they could be used for espionage.
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