China is a “very important” creditor of Sri Lanka and it would likely be in the interest of both countries if China participated in restructuring Sri Lanka’s debt, U.S. Treasury Secretary Janet Yellen said on Thursday.
Yellen said she would urge other members of the Group of 20 major economies to put pressure on China to be more cooperative in long-stalled efforts to restructure the debts of countries in debt distress, including Sri Lanka.
Sri Lanka owes at least $5 billion to China although some estimates put it at almost twice that amount. India has also lent it $3.8 billion and Japan is owed at least $3.5 billion, according to the International Monetary Fund, with another $1 billion due to other rich countries.
“Sri Lanka is clearly unable to repay that debt, and it’s my hope that China will be willing to work with Sri Lanka to restructure the debt,” Yellen told a news conference on the sidelines of a meeting of G20 finance officials on the Indonesian island of Bali. She declined to comment on recent events in Sri Lanka, where people are waiting for the resignation of President Gotabaya Rajapaksa, who has fled the country to escape a popular uprising as it struggles with an economic crisis.
Sri Lanka defaulted on its $51 billion of international debt in May after years of heavy borrowing and tax cuts by the government, plus the damaging impact of the COVID-19 pandemic. The economy of the country of 22 million people began to show cracks in 2019 after large tax cuts by Rajapaksa’s government drained the country’s coffers.
The pandemic then shattered the lucrative tourism industry, and rising global prices have left Colombo struggling for essentials such as fuel, medicine and food. Yellen singled out China for failing to cooperate in efforts to provide debt relief under the Common Framework adopted by G20 members and the Paris Club of official creditors in October 2020 to help heavily indebted low-income countries weather the COVID-19 pandemic.
Three countries – Zambia, Ethiopia and Chad – have applied for help under the framework, but those efforts have stalled, largely due to foot-dragging by China, now the world’s largest sovereign creditor, and private sector creditors. “More needs to be done to help the most vulnerable, and this is a key message I will be emphasizing at these G20 meetings,” Yellen told reporters, citing the deteriorating global economic conditions that have pushed many developing countries into graver economic straits since Russia’s invasion of Ukraine.
“A key objective of this trip is to push G20 creditors, including China, to finalize debt restructurings for developing countries now facing debt distress,” she said. Yellen told reporters earlier this week that it was “quite frustrating” that China was not stepping up on the debt issues, and said Chinese leaders need to better coordinate among various Chinese lenders to developing economies.
Washington would also provide a grant of $70 million to the International Monetary Fund’s Poverty Reduction and Growth Trust to further enable the IMF to continue making zero-interest loans to the world’s poorest economies, Yellen said.