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Economic crisis: China ready to negotiate Lankan debt

19 Jun 2022

  • Chinese awaiting Sri Lanka’s confirmed arrangement
  • US Treasury officials to arrive to assist reforms programme
  • IMF tax team leaves, technical team to begin discussions
By Our Political Editor Several steps are to be taken in relation to addressing Sri Lanka’s ongoing economic crisis with international assistance from this week onwards, The Sunday Morning learns.  One of the key steps will be the commencement of discussions with China on rescheduling Sri Lanka’s debt to the same. A highly-placed source told The Sunday Morning that following China’s agreement to negotiate Chinese debt to the country, the Sri Lankan Government would be commencing the discussion in an official capacity in the next few days.  According to diplomatic sources, the Chinese are waiting for Sri Lanka to present its confirmed arrangement on debt rescheduling as the Chinese financial institutions have expressed willingness on the rescheduling process.  Prime Minister Ranil Wickremesinghe meanwhile had stated that the Government has also requested the Chinese Government to consider renegotiating the conditions of the currently idling $ 1.5 billion swap provided by China. China accounts for 10% of Sri Lanka’s external debt and ranks third among Sri Lanka’s creditors after Japan and the Asian Development Bank (ADB). Meanwhile, Sri Lanka’s economic crisis last week brought the envoys of the US and China together in Colombo when US Ambassador to Sri Lanka Julie Chung met with Chinese Ambassador Qi Zhenhong to discuss the situation in Sri Lanka and how best the international community could assist the country. Ambassador Chung has left for Washington DC and is to return to the country next week (around 27 June) with officials from the US Treasury to assist Sri Lanka formulate its economic reforms programme, it is also learnt. Prior to her departure to Washington, Chung had met with President Gotabaya Rajapaksa and Prime Minister Wickremesinghe and explained the importance of the economic reforms programme as well as the need to move forward with the political reforms programme through the proposed 21st Amendment to the Constitution. She had also informed the Sri Lankan leaders that officials from the US Treasury were ready to assist in the economic reforms programme.  It is further learnt that a team from the International Monetary Fund (IMF) that was in Colombo last week to discuss the Government’s tax structure and tax reforms had left the country during the weekend after concluding discussions with Sri Lankan officials.  The IMF’s technical team meanwhile is to arrive in the country during the weekend in order to commence discussions from tomorrow (20) as part of the programme to finalise the assistance sought by Sri Lanka to overcome the ongoing crisis. Furthermore, the advisors – Lazard and Clifford Chance – appointed by the Government to formulate the debt restructuring plan met with Prime Minister Wickremesinghe last Thursday (16) before commencing discussions with the Finance Ministry. Meanwhile, US Foreign Relations Committee Chairman Robert Menendez has written to Quad members congratulating the members on a successful Quad Leaders’ Summit and encouraged the Quad as it continues to develop as a functional part of the Indo-Pacific architecture, further noting that a more proactive role is required to address Sri Lanka’s political and economic crisis. The letter then noted that today’s iteration of the Quad could lead the way in working to avoid an economic explosion in Sri Lanka that could spark a humanitarian crisis with wider, destabilising, regional impacts. “Under the Rajapaksas, Sri Lanka has been left on the brink of financial ruin and humanitarian catastrophe. Mahinda Rajapaksa led this country straight into a Chinese debt trap and then his brother, Gotabaya Rajapaksa, failed to take the prudent economic steps necessary to avoid a default on its sovereign debt. Today, Sri Lankans of all backgrounds are rising to make clear that it is time for a change,” the letter stated. Additionally, Menendez’s letter noted that New Delhi had taken a proactive role in providing loans and humanitarian assistance to the Sri Lankan Government to avoid a meltdown, further mentioning that Washington was preparing long-term economic support.  


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