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As the world’s largest creditor, it is also difficult for China to save Sri Lanka

China is now facing its own economic troubles when it announced a blockade order to prevent the worst Covid-19 outbreak since early 2020, shutting down technology and financial centers. in Shanghai and Shenzhen. Analysts warn China’s economic growth target of 5.5% is under threat.

China has become the world’s largest creditor country over the past decade as state-owned policy banks have lent more money to developing countries than the International Monetary Fund (IMF) or the Central Bank of China. World (WB) in recent years. Ambiguity around the terms and scope of some such loans has been criticized, especially as the pandemic exacerbates debt problems in poor countries.

As the world's largest creditor, it is also difficult for China to save Sri Lanka - Photo 1.

Drivers wait in line to buy gasoline amid the economic crisis in Colombo – Sri Lanka on April 12. Photo: Reuters

Sri Lanka’s government on April 12 declared default on its debt because it failed to pay its foreign debt of up to 51 billion USD and was waiting for a bailout from the IMF.

Earlier this month, the president of the China-backed Asian Infrastructure Investment Bank Jin Liqun also encouraged Sri Lanka to ask the IMF for help.

Matthew Mingey, senior analyst at Rhodium Group’s China Macro and Policy Group, said China’s development banks are acting to preserve profits and it will be difficult for them to take it easy. accepted Sri Lanka’s request for forbearance. According to this expert, Sri Lanka eventually had to resort to the IMF.

Meanwhile, five sources familiar with the matter told Reuters news agency that India is ready to provide financial assistance of up to $2 billion to Sri Lanka, and to provide the island nation with food and fuel amid New Delhi’s efforts force to regain a position lost to China in recent years.

“We are definitely looking to help them and are ready to offer more swaps and loans,” an Indian source said.

A senior government source in New Delhi said Sri Lanka’s warning about default was worrying. So far, according to Reuters, India has committed $1.9 billion in support to Sri Lanka through loans, lines of credit and currency swaps. Sri Lanka has also called for an additional $500 million credit line for fuel.

One source said New Delhi wants its southern neighbor to cut its dependence on China. Sri Lanka owes China about $3.5 billion, or 10.8% of the island’s total GDP, and Beijing has also built ports and roads in Sri Lanka Indian sources said: “We want them to. reduce China’s debt and we want to be a stronger partner.”

Pakistan was also rejected

China has yet to fulfill its pledge to refinance $4 billion in loans that Pakistan repaid at the end of March and it has not responded to Sri Lanka’s offer of 2.5 billion credit support. USD. According to former Pakistani finance minister Miftah Ismail, the new Pakistani government plans to work with the IMF to stabilize the economy.

Mr. Raffaello Pantucci of the S. Rajaratnam School of International Studies (Singapore) said that in the past few years, Beijing has reconsidered lending abroad because its banks have found that some indebted countries do not have ability to repay.

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