Two debt deals were struck on the same Wednesday, and the lenders in one of them wanted to see the other. The Official Creditor Committee (OCC), which includes the United States, Canada and several European nations, agreed in Paris to restructure $5.8 billion in loans to Sri Lanka. Colombo, meanwhile, signed a separate arrangement with the Exim Bank of China covering $4.2 billion.
The OCC did not leave it there. It said it had asked Sri Lanka for “all information necessary for the OCC to ensure comparability of treatment”, meaning proof that no creditor is getting a better bargain than the rest. It also expects Colombo to reach an agreement with private creditors “on terms at least as favourable” as the ones the committee offered.
Why China is the sticking point
Beijing is by far the largest single creditor of Sri Lanka, and its money comes in two kinds: concessionary bilateral loans and private commercial credit. The $4.2 billion in Chinese bilateral credit was dealt with on Wednesday. A $2.18 billion loan from the China Development Bank, which counts as private commercial lending, was not mentioned at all.
Sources involved in the process said that loan was likely to be handled on par with the $12.55 billion in International Sovereign Bonds, on which negotiations are still going.
Treasury data from the end of March put Sri Lanka’s total foreign debt at an estimated $37 billion. Of the $10.58 billion owed in bilateral debt, China holds $4.66 billion, Japan $2.35 billion and India $1.36 billion.
Background to the delay
Sri Lanka defaulted on its foreign debt in April 2022 after running out of foreign exchange. The economic crisis, unprecedented for the country, forced then-president Gotabaya Rajapaksa to step down.
The government had hoped to wrap up restructuring quickly, in step with a $2.9 billion IMF bailout programme. Delays in reaching terms with China held that up.
