President confident China will help Sri Lanka in its debt restructuring process

By Sanath Nanayakkare

Sri Lanka behaving maturely and professionally during the period of its debt crisis has talks ongoing with China – its largest bilateral creditor – and President Ranil Wickremasinghe is confident that China will help the sovereign’s debt workout and support it in concluding a restructuring.

This was revealed during the President’s address at the Business Today Top 40 Awards Ceremony at the Presidential Secretariat in Colombo on April 21.

“Recently, I had a Zoom meeting with the Japanese Minister of Finance, India’s Minister of Finance, and the Head of the Paris Club in France, who represented all the creditors. They encouraged us to move forward, and we are also in talks with China, our other main partner, to join us in resolving this issue,” he said.

“We will move forward together and individually, and the progress we have made so far has impressed many. In a short period, we turned the situation around through common sense and tough decision-making. This was probably the most challenging phase of my life, surpassing even my time in the Ministry of Education. We had to make decisions that adversely affected a segment of the population, but in the long run, it was necessary for the betterment of the country. In the medium term, we can expect to see positive results,” he said.

The following are some excerpts from the President’s speech.

“There are two main challenges we face; the first is revenue. We must find ways to increase revenue. The second challenge is debt restructuring, and there is no need to fear it. As we move forward, we must address the issue of salaries for the government’s 1.7 million employees, some of whom will retire while others will find new jobs. The government’s expenditure on the armed forces is also a concern, but we have calculated that until 2028, this issue will be under control. However, the larger concern is the amount of money we will need to pay salaries and pensions for those who will retire in the coming years. According to Treasury estimates, we may run into trouble from about 2030 onwards. Therefore, this is a crucial issue that we must address. We can restructure debt and increase revenue, but we must also focus on the budget and retirement benefits for current employees. Amid these challenges, we will need to obtain loans from time to time as we move forward.”

“Our balance of payment is not currently in our favour, so the next step we are taking is to implement reforms and restructuring to create opportunities for growth. Our immediate action this month has been to present the IMF arrangement to Parliament and request its support. By the end of next month, we aim to have our growth agenda ready, with the Economic Stabilization Committee having already prepared their report and other drafts being reviewed and amended by the President’s Office and other stakeholders. Our objective is to reach the RCEP standards and eventually join the Comprehensive and Progressive Agreement for Trans-Pacific. To achieve this, we must modernize traditional industries such as agriculture and fisheries, develop a new approach to tourism and logistics, focus on green and renewable energy, and prioritize artificial intelligence for which we have set aside a billion rupees next year for this purpose. But I am not sure whether we could utilize the full amount for the purpose.”

Meanwhile, US Treasury Secretary Janet Yellen speaking at Johns Hopkins University’s School of Advanced International Studies recently welcomed China’s recent provision of credible financing assurances for Sri Lanka. “China’s participation is essential to meaningful debt relief’, Yellen said at the forum.

According to a Reuters news report on April 21, IMF chief Kristalina Georgieva said that the new Global Sovereign Debt Roundtable had made “tangible progress” on debt restructuring issues. She said that China and other participants had reached a common understanding that multilateral development banks could provide positive net flows to countries in need, instead of accepting outright reductions in debt levels.China has long been unwilling to accept losses on loans unless private-sector creditors and multilateral development banks shoulder their share of the burden, Reuters report said.