Ajit Karn
Asia Nikkei has learned that Japan will take the initiative in organize a meeting of Sri Lanka’s creditor nations to promote debt restructuring. The plan is anticipated to be announced on Thursday by Japan, India, France, and other lenders. China will be invited, as it is Sri Lanka’s greatest bilateral lender.
The arrangement could serve as a model for addressing the debt issues of middle-income countries, which have been exacerbated in part by rising interest rates in the United States and Europe.
The Japanese Minister of Finance, Shunichi Suzuki, will participate alongside senior officials from India and France. Asia Nikkei predicts that President of Sri Lanka Ranil Wickremesinghe will participate online.
In addition, the International Monetary Fund, the World Bank, and other international organizations, as well as the private sector, will participate in the discussions regarding debt restructuring. The parties involved will coordinate the first meeting’s date and time.
After the coronavirus pandemic all but halted global travel, Sri Lanka’s primary source of income, tourism, plummeted. Incapable of repaying borrowed infrastructure funds from China and other nations, the nation defaulted in May of last year.
Asia Nikkei reports that China held 52% of Sri Lanka’s bilateral debt in June of last year. Japan was the second greatest creditor with a 20% share, followed by India with 12% and France with 3%.
Asia Nikkei reported that China has resisted reducing or canceling Sri Lanka’s debt. The debt restructuring has consequently been delayed. However, China did provide assurances in March that it would work out a debt solution for Sri Lanka in the coming months, allowing the South Asian island to secure a vital USD 2.9 billion bailout from the IMF. China’s participation or non-participation in the multilateral discussions is currently the central issue.
In 2020, the Group of 20, comprised of industrialized and emerging-market nations, established a common framework to resolve the debt issues of emerging economies. According to Asia Nikkei, only low-income countries are eligible for partial debt remission under the leadership of the IMF and other organizations.
Today’s high prices, caused by the pandemic and Russia’s invasion of Ukraine, are causing emerging economies severe pain. According to the World Bank, emerging economies will have an external debt of $9 trillion by the end of 2021, which is more than double what it was ten years prior.
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The debt crisis has spread beyond low-income countries, with Sri Lanka becoming the first middle-income country to default since the coronavirus outbreak. According to Asia Nikkei, if Sri Lanka’s default is resolved utilizing the new framework, it could serve as a template for future debt restructuring.
