Sri Lanka begins crucial debt restructuring talks with China

COLOMBIA, SRI LANKA – Sri Lanka’s president said on Thursday his government had begun debt restructuring talks with China, an important step towards finalizing an International Monetary Fund bailout of the island nation from its worst economic crisis .

President Ranil Wickremesinghe told parliament on Thursday that initial talks would continue after the meeting of the Chinese Communist Party Congress which begins on October 16.

Wickremesinghe, who recently returned from a trip to Japan, also said Japanese officials had agreed to mediate talks with China.

“China has supported us since ancient times and we believe it will do the same in these difficult times,” Wickremesinghe said.

Sri Lanka is on the verge of bankruptcy and has suspended repayment of its $51 billion foreign debt, of which it must repay $28 billion by 2027.

Sri Lanka has reached a preliminary agreement with the IMF for a four-year, $2.9 billion rescue package. Completion of the bailout depends on assurances from Sri Lanka’s creditors on debt restructuring.

Sri Lanka has borrowed heavily from China over the past decade for infrastructure projects including a seaport, an airport and a city being built on reclaimed land. The projects failed to generate enough revenue to pay the loans, a factor in Sri Lanka’s economic difficulties.

China is not Sri Lanka’s biggest creditor. It holds a share of around 10% of Sri Lanka’s loans after Japan and the Asian Development Bank. However, China’s agreement to restructure its loans is crucial as the United States has insisted that China cooperate in the restructuring “openly and on terms comparable to each other”.

China has not committed to any restructuring, although it has offered an additional loan.

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