Sri Lanka owed Chinese lenders $7.4 billion at the end of last year, which was nearly a fifth of its public external debt, according to calculations released Wednesday by the China Africa Research Initiative (CARI). This was a higher estimate than many others.
The number was higher than the “often cited” 10 to 15%, the study said, and a “significant portion” of the country’s debt to China was recorded as loans to state-owned enterprises instead of to the central government.
Crisis-hit Sri Lanka is in the middle of renegotiating its debt because of years of bad economic management and the COVID-19 pandemic, which caused the country to fall into the worst economic crisis since it gained independence from Britain in 1948 and caused it to default on its loans.
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According to data collected by CARI at the Johns Hopkins University School of Advanced International Studies, the two biggest Chinese lenders are the Export-Import Bank of China (EximBank) and the China Development Bank, which are in charge of $4.3 billion and $3 billion, respectively.
China is Sri Lanka’s biggest bilateral creditor, and it is talking with India and Japan about reorganizing the country’s debt.
In the report, CARI researchers Umesh Moramudali and Thilina Panduwawala wrote, “China will have to play a major role in Sri Lanka’s debt restructuring process.”
After getting a staff-level agreement from the International Monetary Fund for $2.9 billion, the island nation started talking with its bilateral creditors in September. But no money will flow until the fund’s board approves the deal. For this to happen, bilateral lenders must give financial guarantees.
The latest talks, which were supposed to happen earlier this month, were put off, making it unclear how quickly the debt restructuring can move forward.
The island nation owes $37.6 billion to other countries, the report says. When foreign currency debt from the central bank is added, which includes a currency swap with China worth $1.6 billion, public external debt goes up to $40.6 billion, of which 22% comes from Chinese creditors.
CARI’s total debt is different from the $46.6 billion number that the government released in September because it doesn’t include local debt in hard currency and loans to some state-owned businesses.
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The CARI study also found that EximBank gave six loans totaling about $1.3 billion to the deep-water port in Hambantota between 2007 and 2013. There are clauses in the loan agreements that say “the loans are governed by Chinese law and will be settled by the China International Economic and Trade Arbitration Commission.”
