The Troubled State of Debt Negotiations: Sri Lanka's Case Study

Sri Lanka's debt negotiations have hit a roadblock as the IMF refuses to release funds due to the country's large debts and tiny tax revenue. China, Sri Lanka's biggest creditor, is holding up the restructuring process by refusing to take a haircut on its debts. Other national creditors, led by India, are working on a deal that excludes China, potentially forcing Sri Lanka to suspend repayments or reach a comparable deal. The breakdown in sovereign-debt negotiations reveals the extent of the problem, with middle-income countries like Sri Lanka unable to access the Common Framework for debt restructuring. Tensions between China and India as creditors may exacerbate future standoffs in other indebted countries.