What’s the next move in the Sri Lankan debt crisis?

What’s the next move in the Sri Lankan debt crisis?
A protester holds a national flag at a seafront tent camp that became the focal point of months-long nationwide demonstrations, as the deadline police asked them to leave the camp is approaching, amid the country’s economic crisis, in Colombo, Sri Lanka, August 10, 2022. REUTERS/Kim Kyung-Hoon/File Photo

Sri Lanka is dealing with a major debt crisis ranging from estimates of US$85 billion to over US$100 billion. The crisis has resulted in a depletion of essential imports like fuel and medicine. Sri Lanka’s former President Gotabaya Rajapaksa was also booted out of office after nationwide protests over this disaster. While the International Monetary Fund (IMF) agreed to loan the country US$2.9 billion, this can only happen with additional assurances from Sri Lanka’s top three lenders, India, China and Japan.

Yesterday, the Sri Lankan government announced that the financial advisory company Lazard had started this process of international cooperation. In talks with India, China and Japan, Lazard is trying to restructure Sri Lanka’s debt. Combined, Sri Lanka owes these three countries about US$13 billion, with China being the island’s biggest creditor. Later this week, the government will also be speaking with private creditors who have US$12 billion in bonds, according to an official source. It’s expected to reach out to the US, too.

Key comments:

“They are in the process of speaking to India, China, Japan, mainly to ensure we come to some sort of consensus. We will keep our fingers crossed that we will be able to come to an agreement," acting cabinet spokesperson Ramesh Pathirana told reporters.

“We are ready to work with relevant countries and international financial institutions," Chinese foreign ministry spokesman Zhao Lijian said regarding Sri Lanka’s debt restructuring.

“Financing assurances to restore debt sustainability from Sri Lanka’s official creditors and making a good-faith effort to reach a collaborative agreement with private creditors are crucial before the IMF can provide financial support to Sri Lanka," the IMF said in a statement on September 1.