China ‘should play formal role in debt restructuring’

China should play a formal role in the common framework for creditor talks set up by India and the Paris Club that is aimed at facilitating Sri Lanka’s debt restructuring, a US official said in a Reuters report.

Sri Lanka defaulted on its foreign debt for the first time in its history last April as its economy faced its worst financial crisis in more than seven decades.

Key creditor Japan, along with France and India, last month set up the common framework for creditors to discuss and coordinate restructuring Sri Lanka’s debt, a model they hope can be extended towards other middle-income economies as well.

China, Sri Lanka’s largest bilateral lender, participated as an observer at the island’s first meeting of creditor nations earlier in May, raising hope among policymakers that Beijing will engage more in debt-resolution talks for low- and middle-income countries.

Participating in the platform is key to ensuring “debt restructuring happens on comparable terms,” Afreen Akhter, deputy assistant secretary in the U.S. government agency, the Bureau of South and Central Asian Affairs (SCA), told Reuters.

“We very much believe the PRC should play a formal role in the creditor coordinator platform and, again, we really want to see all parties come to the table, equitably, to finalise this process.”

Sri Lanka owes $7.1 billion to its creditors, the latest government data shows, with $3 billion owed to China, $1.6 billion to India and $2.4 billion to the Paris Club, a group of major creditor nations.

Sri Lanka has set an ambitious target to complete its debt restructuring framework by September, in parallel with the first review of its $2.9 billion programme with the International Monetary Fund (IMF).

An IMF team on Monday said the country’s economy would contract 3% in 2023.