SRI Lanka’s major creditors officially launched a negotiation yesterday for restructuring the island’s debt, an essential step to give the Indian Ocean nation some financial breathing room.

“I am very pleased to announce that an agreement has been reached between the creditors to discuss the restructuring and thus get Sri Lanka out of the unprecedented crisis it is going through,” said Japanese Finance Minister Shunichi Suzuki at a press conference at the International Monetary Fund (IMF) headquarters.

The negotiations will bring together the main creditor countries, starting with Japan and India, as well as the Paris Club creditors, which will be represented by France.

China, however, has not said whether it will participate.

“The beginning of a coordinated effort… to address Sri Lanka’s distress means we have made a critical policy adjustment” with IMF, said Sri Lankan President Ranil Wickremesinghe, who is also finance minister, via video conference.

However, Sri Lanka “remains in a deep debt crisis”, said IMF deputy managing director Kenji Okamura, “and expeditious debt resolution is fast needed for Sri Lanka to emerge as quickly as possible from its crisis”.

After months of talks, Sri Lanka’s creditors agreed last month to provide the assurances to IMF to release a pending US$2.9 billion (RM12.8 billion) aid package.

But China was slow to join in, effectively blocking approval of the IMF programme, which was finally agreed on March 20.

Beijing initially proposed a two-year moratorium on the repayment of its debts, but without accepting a reduction in the amount, an insufficient concession for IMF.

The nation of 22 million people defaulted on its US$46 billion foreign debt in April last year, during an unprecedented economic crisis that caused months of food and fuel shortages.

Just over US$14 billion of the total foreign debt is bilateral debt to foreign governments, 52% of which is owed to China. – AFP, April 14, 2023.