Sri Lanka ‘can’t get out of crisis without China,’ analyst says

The country will not be able to resolve its debt restructuring problems without assistance from China, according to analysts.

The island nation has been in a financial crisis since it gained independence. The country is facing a fuel shortage and the possibility of running out of food and medicine.

Public anger over the economic crisis has led to street protests. President Gotabaya Rajapaksa, who has been blamed for the mismanagement of the economy, was forced to resign and fled overseas last week.

The acting president declared a state of emergency on Sunday in order to quell protests ahead of Wednesday's election of a new leader.

Umesh Moramudali, lecturer at University of Colombo, said that China's willingness to provide substantial debt relief to Sri Lanka will be vital to accelerate the debt restructuring.

You can’t get out of this crisis without China.

Moramudali told CNBC that China is the only way out of the crisis. It's not their usual path to restructure their debt.

China's Belt and Road Initiative has resulted in billions of dollars in investments. In order to build ports, roads, railways and pipelines across Asia, Europe and Africa, the massive infrastructure program was launched.

Moramudali said that the international community wants China to agree to a common framework for debt restructuring.

Wang said that Chinese financial institutions reached out to the Sri Lankan side after they decided to suspend international debt payments.

In a high-profile case, Beijing took over a strategic port in Sri Lanka when it failed to pay its debts.

Critics say that Beijing may force countries that owe money to it to sign over national territory or make steep concessions if they can't pay up. China denies the accusations.

According to Sri Lanka, China accounted for 10% of its total debt as of April last year.

He said that further research provided a more accurate picture of China's lending to SriLanka.

About 20% of Sri Lanka's debt is to Chinese creditor. All of these 20% will have to be changed. The China Development bank and China's Exim bank will deal with restructuring.

According to a report, the former president of Sri Lanka said in June that his country had not been able to get a loan from China.

At last week's Group of 20 meeting, the U.S. treasury secretary said it was in China's interest to restructure Sri Lanka's debt

While China is willing to perhaps engage in a rollover of debt or refinancing of the debt, it’s not willing to take on restructuring because of the precedent it will set.

China is a very important creditor of the island nation. It's clear that Sri Lanka can't repay that debt. It is my hope that China will be willing to work with SriLanka to restructure the debt, it would likely be both of China and SriLanka's interests.

SriLanka is in a tough spot over its debt to China.

The director of South Asia Initiatives at the Asia Society Policy Institute said on Tuesday that one of Sri Lanka's tragic mistakes was not engaging in restructuring negotiations after the Pandemic hit.

The debt was unsustainable at that point, he said.

Bery said that Sri Lanka politicians believed that China would come to their aid and restructure their debts.

China isn't willing to restructure its debt because it will set a bad precedent

The data from the central bank shows that Sri Lanka has $2 billion in foreign exchange reserves against $7 billion in debt due this year.

The country was close to concluding talks with the International Monetary Fund for a debt relief, according to the acting president.

Negotiations with the International Monetary Fund are close to conclusion, and discussions with donor countries are also progressing, according to the office of Prime Minister Ranil Wickremesinghe.

Once there is a new government, the negotiations with the International Monetary Fund will resume. The acting president said it wouldn't be concluded quickly. Moramudali said that it will take a couple of months to finalize the agreement.

The International Monetary Fund ended talks with Sri Lanka in June after they failed to reach a deal.

Bery said that the International Monetary Fund was "lend" during the swine flu. Raising taxes, anti-corruption measures and possibly central bank independence are some of the stringent measures that will be looked for.