Japan, India, France unite for Sri Lanka creditors’ platform

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Japan, India, and France have launched a common platform for talks among bilateral creditors to coordinate the restructuring of Sri Lanka’s debt. The move is hoped to serve as a model for solving the debt woes of middle-income economies. However, it remains uncertain whether China, Sri Lanka’s biggest bilateral creditor, will join the initiative launched by Japan. The group has sent an invitation to all of Sri Lanka’s bilateral creditors, including China, and hopes to hold the first round of talks at the earliest date possible. Sri Lanka owes $7.1bn to bilateral creditors, with $3bn owed to China, followed by $2.4bn to the Paris Club and $1.6bn to India. The government also needs to renegotiate more than $12bn of debt in Eurobonds with overseas private creditors and $2.7bn on other commercial loans.

Sri Lanka’s central bank governor told Reuters news agency earlier this week that having a single platform for talks would be a welcome move that would make it easier to discuss and share information. The island nation of 22 million people last month secured a $2.9bn programme from the International Monetary Fund (IMF) to tackle its huge debt burden. However, the middle-income economy could not apply for relief under the G20’s common framework for debt treatment, which targets only low-income countries. That has put the onus on big economies to come up with an alternative scheme, leading to the creation of the new platform.

Japanese Finance Minister Shunichi Suzuki said that “to be able to launch this negotiation process, gathering such a broad-based group of creditors, is a historical outcome”. He added that “this committee is open to all creditors,” voicing hope that China would join in the effort. French Director General of the Treasury Emmanuel Moulin told the briefing the group was ready to hold the first round of talks “as soon as possible”. Sri Lanka’s President Ranil Wickremesinghe, who is also the finance minister, said via video conference that “the beginning of a coordinated effort… to address Sri Lanka’s distress means we have made a critical policy adjustment” with the IMF.

Sri Lanka kicked off talks to rework part of its domestic debt this month and aims to finalise the deal by May. Having a single platform for talks would be a welcome move that would make it easier to discuss and share information. The creation of this platform is hoped to become a model case for debt restructuring of middle-income countries.