Sri Lanka holds debt restructuring talks with bilateral creditors

Business district in Colombo Sri Lanka

A general view of the business district in Colombo, Sri Lanka, September 10, 2020. Picture taken through a glass window. (Reuters / Dinuka Liyanawatte)

Sri Lanka said it held a productive meeting with its bilateral creditors, which include India and China, on Thursday as the country looks to restructure its debt and carve a path out of its worst financial crisis in decades.

Sri Lanka has been gripped by a deep financial crisis this year caused by record-low foreign exchange reserves that has left the island of 22 million people struggling to pay for essential imports including fuel, food, cooking gas and medicine.

The online meeting was chaired by Sri Lanka’s Treasury Secretary Mahinda Siriwardana and Central Bank Governor Nandalal Weerasinghe, according to a statement released by the president’s office.

“The IMF programme and economic reform agenda will reconstitute Sri Lanka’s financial buffers,” Weerasinghe said in the emailed statement. “I thank the official creditors for joining this productive meeting where we were able to discuss Sri Lanka’s current financial position and progress on reforms.”

Indian and Chinese officials were also present at the meeting, two sources told Reuters. Representatives of the Export-Import Bank of China (EximBank) were also expected to be part of the talks, a third source at the president’s office said.

Sri Lanka defaulted on its foreign debt for the first time in May. Japan, India and China are Sri Lanka’s largest bilateral creditors, while China’s EximBank accounts for about $3.8 billion in loans extended to Colombo to fund large scale infrastructure projects.

“Now we are really getting into the talks with China,” the third source said on condition of anonymity.

Talks had been low key in recent months, the official said, though adding there was now a push to move things along more swiftly since China concluded its Communist Party Congress in late October, which sets the course for policy in the world’s second largest economy for years to come.

“However, China has not changed its stance on not accepting haircuts but has indicated they may be willing to be more flexible on maturity extensions,” the source said.

Earlier on Thursday, S&P Global Ratings lowered ratings on multiple Sri Lanka bonds to its lowest rating “D”, from “CC”, following missed interest payments on Sept. 14 and 28.