TOKYO: Japan is seeking to organise a Sri Lanka creditors’ conference, hoping it could help solve the South Asia nation’s debt crisis, but uncertainties cloud the outlook for any talks, three people with knowledge of the planning said.

Tokyo is open to hosting talks among all the creditor nations aimed at lifting Colombo from its worst debt crisis since independence, but it is not clear whether top creditor China would join and a lack of clarity remains about Sri Lanka’s finances, one source said.

Japan would be willing to chair such a meeting with China if that would speed up the process for addressing Sri Lanka’s debt, estimated at $6.2 billion on a bilateral basis at the end of 2020, this source said.

President Ranil Wickremesinghe said last week that Sri Lanka would ask Japan to invite the main creditor nations to talks on restructuring bilateral debts. He said he would discuss the issue with Prime Minister Fumio Kishida in Tokyo next month, when he is expected to attend the funeral of assassinated former premier Shinzo Abe.

Tokyo, the number two creditor, has a stake in rescuing Sri Lanka, not just to recoup its $3 billion in loans but also its diplomatic interest in checking China’s growing presence in the region.

S&P Global this month downgraded Sri Lanka’s government bonds to default after it missed interest and principal payments. The island nation of 22 million people off India’s southern tip, with debt at 114 percent of annual economic output, is in social and financial upheaval from the impact of Covid pandemic on top of years of economic mismanagement.

An International Monetary Fund (IMF) team met Wickremesinghe on Wednesday to discuss a bailout, including restructuring $29bn in debt, as Colombo seeks a $3bn IMF aid programme. The president met Japan’s ambassador the same day.

Tokyo believes a new “platform” is needed to pull creditors together, the sources said.

“Sri Lanka is running out of time since it defaulted on its debt. The priority is for creditor nations to agree on an effective scheme,” one source said.

“Japan is keen to move this forward. But it’s not something Japan alone can raise its hand and push through,” said the source, adding that the cooperation of other nations was crucial.

New framework needed

Concerns include rivalry and territorial tensions between big creditors China and India, while Sri Lanka would have to commit to reforming its finances and disclose more information about its debt, the sources said.

Last month, shortly after Wickremesinghe took office when his predecessor fled the country, Chinese President Xi Jinping wrote to him that he was “ready to provide support and assistance to the best of my ability to President Wickremesinghe and the people of Sri Lanka in their efforts”.

But the sources said getting Beijing’s cooperation on a debt restructuring was complicated by factors such as a large number of lenders and that China was balking at taking a “haircut” on its loans and at reducing Colombo’s debt burden.

A Chinese spokesman said Beijing was “willing to stand with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka respond to its present difficulties, relieve its debt burden and realise sustainable development”.

Published in Dawn, August 27th, 2022