China provides USD 9 billion to debt ridden Pakistan to keep it afloat, will it make quick move to help crisis-hit Sri Lanka

China has offered a USD 9 billion bailout package to Pakistan and pledged more support for the cash-strapped nation, saying that it has done its “utmost” to stabilise the financial situation of its all-weather ally and will continue to do so.

All eyes are now on China as to how quickly it can move ahead on debt restructuring talks with the crisis hit Sri Lanka which is likely to miss the December deadline for securing a USD 2.9 billion bailout package from IMF. China and Sri Lanka are yet to come onboard for this.

In Sri Lanka fails to secure the IMF loan in December, it will have to wait for March 2023. As a pre-condition, Sri Lanka’s creditors have to agree to a deal for debt restructuring.

India and Japan have already initiated a dialogue with Colombo on debt reconciliation and restructuring but talks with China got delayed due to Beijing’s single-point focus on the ruling Communist Party’s 20th party congress in October where President Xi Jinping was reappointed as top leader for the norm-breaking third time.

According to official data, Sri Lanka – USD 84.5 billion economy – has foreign debt of USD 35 billion in total which includes bilateral, multilateral, and commercial loans as of June 30, this year.

Sri Lanka’s outstanding debt to China, its top lender since the end of a 26-year civil war, is nearly USD 7 billion or nearly 20 percent of the total outstanding foreign debt. China accounts for 43 percent of the total bilateral loans, the data showed.

China’s move has drawn huge attention, as last week, during Pakistan Prime Minister Shehbaz Sharif’s visit to Beijing, the Chinese leadership promised to roll over USD 4 billion in sovereign loans, refinance USD 3.3 billion commercial bank loans and increase currency swap by about USD 1.45 billion.

Quoting Xi Jinping, Pakistan’s Finance Minister Ishaq Dar said on Saturday that the Chinese President in his meeting with Pakistan Prime Minister in Beijing on November 3 had assured him, “don’t worry, we will not let you down”.

However, Sri Lanka is yet to receive any concrete assurance from Chinese leadership despite repeated requests to Beijing several times even before it defaulted on its foreign debt in April this year because it ran out of foreign currency reserves.

Sri Lanka’s finance minister Shehan Semasinghe said in a media interview on Tuesday that he was conveyed Beijing’s readiness to aid the crisis-hit nation during his meeting with Chinese Ambassador Qi Zhenhong.

However, no other details have emerged about any substantial financial assistance to Sri Lanka similar to what China has given to Pakistan.

It is also not clear whether the debt restructuring talks resumed with China which were stalled till October due to China’s pre-occupation with the party congress. Sri Lanka has been asking China for financial assistance and debt roll-over since the beginning of this year but got only a small aid.

According to media reports, Sri Lanka government officials said last week that the timing of the IMF loan disbursement will be mainly depending on China’s decision on its bilateral and commercial debt restructuring modalities.

Last week, Sri Lankan President Ranil Wickremesinghe said: “Now, If we can move and come to an agreement by December, which means coming to an agreement by mid-November, and going up to the IMF Board in mid-December, we will gain a big advantage.

However, I don’t know whether we can do it for the simple reason that in China the focus has started now after the party conference. However, we must aim to have it by January.”

The big ticket infra projects undertaken by Sri Lanka with Chinese assistance have played a role in pushing the Island nation deep into an economic crisis with no signs of recovery at least in the next five years as there are no revenue coming from them.

Entire South Asian region including countries like Pakistan, Sri Lanka, Bangladesh, Nepal are facing financial troubles including dwindling forex reserves. India has been helping friendly countries especially Sri Lanka going out of its way to keep it afloat.

China, however, doled out huge debts under its ambitious Belt and Road Initiative (BRI) without properly assessing project viability in order to increase its influence in the region.

Despite India’s consistent opposition to China-Pakistan Economic Corridor (CPEC) which violates India’s sovereignty, China pumped in money into it, later to face terrorist attacks and local opposition.

Experts say, dismal state of CPEC projects and Sri Lanka’s default has put China’s BRI under scrutiny which is crumbling under corruption and ‘white elephant’ projects.

Pakistan’s Finance Minister Ishaq Dar on Saturday last said that Islamabad would be getting about USD 9 billion from China and USD 4 billion from Saudi as the government tries to steady the nation’s weak economy as part of arrangements for about $35bn putouts against debt and liabilities during the current fiscal year.

According to Pakistani media reports, IMF had estimated total external financing needs at about $33-34bn, but this did not include the requirements of flood damages.

Pakistan owes international debt of around USD 10.7 billion from wealthy western nations under Paris Club. The Paris Club is a group of officials from major creditor nations whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries.

According to the International Monetary Fund (IMF), Pakistan’s total non-Paris Club bilateral debt currently stands at about USD 27 billion, of which Chinese debt is about USD 23 billion.