Paris Club ready for close coordination with China, India on Sri Lanka debt talks

The Paris Club creditor nations last month reached out to China and India seeking to coordinate closely on Sri Lanka’s debt talks but is still awaiting a reply, a source with direct knowledge of the matter told Reuters.

Paris Club officials reached out to two of Sri Lanka’s biggest bilateral creditors after the crisis-hit nation reached a staff-level agreement with the International Monetary Fund board for a $2.9 billion loan in September.

The Paris Club still hasn’t received a reply from either country, the person added, asking not to be named because the talks are private. Officials also met with Indian officials in Washington on the sidelines of the annual meetings of the International Monetary Fund and World Bank. Chinese officials were not present in person.

Sri Lanka is grappling with the worst economic crisis in more than seven decades, with more than a quarter of its population struggling with food shortages, according to United Nations estimates.

The island nation of nearly 22 million people, is seeking an ad-hoc coordination platform to obtain financing assurances from bilateral lenders, which also include Japan.

As a middle-income country, Sri Lanka is not able to apply for relief under the Group of 20 common frameworks for debt treatments.

Its total foreign currency debt of $38.7 billion amounted to 48.2% of GDP, the latest IMF report showed in March.

The person added that India and China might be at odds on who should take the first step to engage in close coordination with the Paris club in Sri Lanka.

The country owes close to $14 billion to a wide range of bilateral creditors, of which 66% is owed to non-Paris Club members, according to Sri Lankan government data.

The country also needs to renegotiate around $12 billion with overseas bondholders after defaulting on its international debt earlier this year.

While the country is promoting the ad-hoc common framework, it is still unclear which country would chair a creditor committee. (Reuters)