US, Japan Urge China to Contribute 'Constructively' to Sri Lanka's 'Debt Treatment' Amid IMF Talks

The economic crisis has not only led to crippling shortages of fuel, food, and other essential items, but it also prompted the Sri Lankan government to announce a default on all its external debt in April. The country’s overall foreign borrowings are to the tune of $51 billion.

The United States and Japan have called on China to contribute “constructively” to managing Sri Lanka’s foreign “debt treatment.”

The appeal was made as US Treasury Secretary Janet Yellen met Japanese Finance Minister Suzuki Shunichi in Tokyo on Tuesday.

“We urge all relevant creditors, including non-Paris Club countries, such as China, with large outstanding claims on low-income countries facing debt sustainability challenges, to contribute constructively to necessary debt treatments,” read the joint statement.

Both governments underlined the “critical role of creditor coordination to ensure fair burden sharing” among all the foreign creditors in the case of Sri Lanka, which is facing its worst balance of payments (BOP) crisis in over seven decades.

Around $7 billion was owed in payments for 2022 before Colombo announced that it would be defaulting.

The economic crisis, spurred primarily by dwindling forex revenues, prompted the government to approach the International Monetary Fund (IMF) for an Extended Fund Facility (EFF). An in-person IMF delegation which visited Sri Lanka during the last week of June concluded its visit without a deal, although the Western lender stated that “significant progress” had been made in the bailout negotiations.

Importantly, the IMF asked Colombo to get "adequate financing assurances" from the country's external creditors, which include Beijing. Japan and the Asian Development Bank (ADB) are Sri Lanka's biggest creditors as of now.

Recently, Beijing slammed the West for attributing Sri Lanka's "debt trap" to China due to its investments in the country. Sri Lanka’s Central Bank governor said last month during an interview that Chinese debt accounts for nearly 15 percent of Colombo’s overall borrowings.

For quite some time now, Western media keep discrediting China’s investment in developing countries, such as Sri Lanka.
As a matter of fact, the label of “debt trap” should be put on Western countries themselves. See Sri Lanka’s foreign debt summary chart. pic.twitter.com/ZkzXSg9sge

— Zheng Zeguang (@AmbZhengZeguang) June 18, 2022

During a meeting with China’s deputy ambassador to Colombo on June 21, Sri Lanka’s Prime Minister Ranil Wickremesinghe said that discussions around debt restructuring (which is a precondition for the IMF to agree on a bailout package) took place, as per an official statement.

While Beijing is yet to make a call on Colombo’s request, it has assured the Indian Ocean island nation of all possible humanitarian assistance in dealing with the economic difficulties facing the local population.

“China is closely following the latest developments in Sri Lanka. As a friendly neighbor and cooperation partner, we sincerely hope that all sectors in Sri Lanka could bear in mind the fundamental interests of their country and people and work together in solidarity to overcome the current difficulties and strive to restore stability, revitalize the economy and improve people’s livelihoods at an early date,” Foreign Ministry spokesperson Wang Wenbin said during a press briefing on Monday.

Sri Lanka’s economic crisis spawned another round of violent protests over the weekend, with protesters taking over the official residences of Prime Minister Ranil Wickremesinghe and President Gotabaya Rajapaksa, both of whom have agreed to resign and pave the way for an all-party government.

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