A Partnership of Resilience

In late July last year, China resolved to assist Sri Lanka’s economic recovery efforts and offered support to overcome its difficulties. In the months that followed, Beijing worked closely with key multilateral creditors to generate momentum that was crucial to Sri Lanka’s push for an urgent bailout program. Now China’s consistent debt sustainability support to Colombo and its advancement of Sri Lanka’s multibillion-dollar recovery deal with the International Monetary Fund (IMF), illustrates the value of a stable and self-sufficient Sri Lanka to Beijing.

Above all, redoubled financial support for the Sri Lankan people is an example of the two countries’ time-tested bilateral friendship, challenging groundless speculation to the contrary. It’s also one that carries a series of lessons for relevant countries and financial institutions to maintain bilateral relationships and ensure considerable support for Colombo’s path to recovery.

Beijing’s concrete assurances to facilitate Sri Lanka’s debt sustainability goals have arrived at a very significant time. The country’s State Minister of Finance Shehan Semasinghe already confirmed to Bloomberg that Colombo was “on track” for meeting the requirements of a major bailout program with the IMF. This is a pursuit that Beijing has supported from the outset and remains committed to seeing through for the benefit of its friendly neighbor.

Add to it China’s solid efforts to prevent any liquidity strain on the Sri Lankan economy, and there is more optimism for the latter’s case for an internationally agreed assistance package. After all, the swift nature of assurances extended by China is consistent with the current economic exigencies faced by Colombo. The result is a valuable signal sent to relevant creditors that relief without delay is chief to easing Colombo’s debt burden long-term. “China stands ready to work with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka navigate the situation, easing its debt burden and helping it achieve sustainable development,” reaffirmed the Chinese Foreign Ministry last week.

For a long time, Sri Lanka’s dedicated team of financial negotiators has seen such guarantees on debt sustainability as key to getting the country over its economic difficulties. China and Sri Lanka’s joint cooperation on international assistance has built on those expectations at a time when the nation is faced with sky-high inflation and wishes to make the most of its fiscal policy measures. The latest sign of cooperative diplomacy is China’s intent to aid Sri Lanka’s foreign exchange reserves, serving as an incentive for other parties to play their part and collectively afford Colombo hope of long-term self-sufficiency.

Historically, both Colombo and Beijing have struck a fine balance on debt sustainability through key bilateral and regional development imperatives, including the Belt and Road Initiative (BRI). The remarkable uptick in overall BRI investments worldwide is a major leap towards win-win cooperation as well. As such, both time-tested partners are well acquainted with the constraints of a delayed bailout package for Colombo, which could drive the latter’s recovery potential on a tangent and make it difficult for private creditors – who own nearly 40% of Sri Lanka’s external debt burden – to reciprocate in good faith. Conversely, a stable and prosperous Sri Lanka continues to serve as a key priority for China. The Export-Import Bank’s letter of debt sustainability support to Sri Lanka is more proof that close cooperation between both partners is destined for new heights.

Now as both sides’ recovery talks bring a bailout deal closer to the table, there is an expectation that Colombo should be facilitated in its quest for long-term goals. That includes aspirations for positive economic growth post-2024. By prioritizing a stable lead-up to Colombo’s recovery options, China is playing a valuable role in helping Colombo ease “its debt burden” and generate momentum for mutually desired stability.

As a result, Sri Lanka’s positive reception of Beijing’s debt sustainability support, and a history of partnering together for stability, illustrate the hallmarks of a truly resilient partnership, one that will only grow stronger and translates into a model to follow for relevant parties and international financial institutions.

Hannan R. Hussain is a foreign affairs commentator, author and recipient of the Fulbright Award.