Sri Lanka debt agreement may be tough this week -Japan official

By Leika Kihara and Jorgelina do Rosario

MARRAKECH, Morocco (Reuters) -Sri Lanka’s creditors are struggling to reach consensus on the nation’s debt and finding an agreement during this week’s International Monetary Fund and World Bank meetings could be difficult, a senior Japanese official said on Wednesday.

The creditors broadly share a common understanding on the main conditions for a debt restructuring but have yet to iron out some technical issues, Japan’s vice finance minister for international affairs Masato Kanda told reporters on the sidelines of the annual meetings in Marrakech.

A debt rework deal between Sri Lanka and countries including Japan, India and France was expected this week. But those countries and the IMF were surprised on Tuesday when Sri Lanka made a deal with China.

Members of the creditor committee now need to see details of the agreement Sri Lanka reached separately with China – its largest single creditor – before finalising their proposal, said a source with direct knowledge, who asked not to be named because the talks are private.

“We’ve made big progress and are moving steadily towards an agreement,” Kanda said. “We’ve been aiming to reach a broad agreement, but that could be difficult this time,” he said on whether a deal could be reached this week.

The island nation of 22 million people, mired in its worst economic crisis in 70 years, is seeking to restructure its obligations with a range of creditors, including China.

Japan, France and India, which are co-chairs of a creditor committee for Sri Lanka, held a deputy-level meeting on Wednesday on the sidelines of the IMF meetings in Marrakech.

“We’re in contact with them, but I won’t comment further,” Kanda said, when asked how he would proceed on negotiations with China.

Earlier in the day, Sri Lanka’s finance ministry said the Export-Import Bank of China had extended an initial debt restructuring deal with the nation. But it was unclear on what terms the debt had been restructured in a deal that took some by surprise. Kanda declined to comment, when asked about the debt restructuring deal.

The IMF said earlier on Wednesday, when asked about the China deal, that it had not been informed of any specific agreements regarding Sri Lankan debt talks.

Sri Lanka has a $2.9 billion programme with the IMF, but the Fund’s latest disbursement may face delays after the IMF’s first review of the loan found a revenue shortfall.

Colombo suspended debt repayments in May 2022.

(Reporting by Leika Kihara and Jorgelina do Rosalio; Editing by Richard Chang, Marguerita Choy and David Gregorio)