India to propose China, other creditors take haircuts on loans

 India is drafting a proposal for G20 countries to help debtor nations badly hit by the economic fallout from the pandemic and Ukraine war, by asking the lenders, including China, the world’s largest sovereign creditor, to take a large haircut on loans, an exclusive Reuters news report said.

Finance ministers and central bank chiefs from the Group of 20 are prepared to meet in Bengaluru next week. The gathering will be the first major event of India’s one-year presidency of the G20, a bloc composed of the world’s biggest economies.

The International Monetary Fund (IMF) said on Tuesday it would hold a virtual meeting with the World Bank, India, China, Saudi Arabia, the United States and other wealthy Group of Seven (G7) democracies on Friday to try to reach understandings on common standards, principles and definitions for how to restructure distressed country debts.

“India is designing a proposal” to try to persuade countries like China to take a big haircut in lending to nations in difficulty, Reuters reported quoting an unnamed Indian government official.

China and the other G20 countries were aware that India was working on a proposal, the official said.
India expects the United States to be one of the main backers of its proposal, said one of the sources.

Two of India’s neighbours, Pakistan and Sri Lanka, are in an economic crisis and urgently seeking international help before they run out of foreign currency to pay for vital imports.

India and the Paris Club of creditors recently told the IMF they supported Sri Lanka’s debt restructuring plan as the bankrupt nation sought a US $ 2.9 billion loan. 

The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure an IMF programme. However, it is believed that this assurance isn’t adequate to unlock the IMF funding for the island nation.

The IMF, World Bank and United States have pushed for the so-called Common Framework - a G20 initiative that was launched in 2020 to help poor countries delay debt repayments - to be expanded to include middle-income countries but China has resisted.