China prefers to refinance its debt to Sri Lanka instead of restructuring

Despite the Sri Lankan government’s announcement on a pre-emptive default on the country’s external debt, China prefers to re-finance its debt to Sri Lanka instead of engaging with an International Monetary Fund (IMF) -backed debt restructuring process, according to Co-Cabinet Spokesperson and Minister of Mass Media Dr. Nalaka Godahewa.

“Although, Western countries are likely to support IMF-backed debt restructuring process, China has expressed its preferences for debt roll-overs instead of engaging in debt restructuring,” the Minister told reporters in Colombo yesterday.

He said China is of the opinion that it cannot provide special treatment to Sri Lanka given its extensive lending portfolio across the world. Especially, he noted that China fears it may set a precedent to other countries, if it agrees to restructure its debt to Sri Lanka.

The Finance Minister is expected to make a detailed summary on discussions with China to parliament shortly.
China accounts for around 10 percent of Sri Lanka’s foreign debt.

Currently, Sri Lanka has sought US$ 2.5 billion financial assistance from China, including US$ 1 billion to rollover a Chinese loan maturing this year.

Meanwhile, China has sought the Sri Lankan counterparts to expedite the stalled negotiations of the proposed Sri Lanka-China Free Trade Agreement.