China backs Sri Lanka debt plan, paves way for $2.9 billion deal with IMF

The IMF bailout process has made slow progress due to the need to restructure Sri Lanka’s external debt.


China has pledged its support for Sri Lanka’s debt restructuring, clearing the biggest hurdle for the debt-ridden country to receive a $2.9 billion IMF bailout, President Ranil Wickremesinghe said today.

In January, India strongly supported the island nation’s bid to get a loan from global lenders to help it recover from its worst economic crisis.

“Last night we received a new letter from China’s EXIM Bank. I and the Central Bank Governor signed our letter of intent and sent it to the International Monetary Fund (IMF) last night,” said Ranil Wickremesinghe. The finance minister said in the parliament.

Ranil Wickremesinghe said that “part of our commitments have been completed and we hope that the IMF will fulfill its obligations in the third or fourth week of this month”, “which will enable us to get financing from the World Bank and ADB”, he said. added.

The IMF bailout has progressed slowly due to the need to restructure Sri Lanka’s nearly $50 billion foreign debt.

China’s previous letter, which announced a two-year moratorium on debt repayment, was recognized by the IMF as insufficient.

Ranil Wickremesinghe said the IMF program over the next four years will be different from all 16 previous programs with the Washington-based global lender.

According to him, the government has to make many difficult economic decisions to stabilize the economy and achieve growth.

Government measures to raise taxes, increase utility rates and end fuel subsidies have sparked political outrage. “I apologize to the people for the trouble,” he said.

The IMF last September approved a $2.9 billion bailout package for Sri Lanka over four years, pending a debt restructuring with Sri Lanka’s creditors – bilateral and sovereign bondholders.

According to data released by the Treasury, by the end of June 2022, Sri Lanka owed nearly $40 billion in bilateral, multilateral and commercial loans.

Chinese loans accounted for 20 percent of total debt and 43 percent of bilateral loans.

In April, Sri Lanka declared debt default for the first time in its history as the economic crisis since independence from Britain in 1948 sparked public protests fueled by a shortage of forex.

Months of street protests led to the ouster of then-President Gotabaya Rajapaksa in mid-July. Rajapaksa opened the IMF talks after withdrawing support from the global lender.

Sri Lanka has introduced severe economic measures such as tax hikes and utility tariff hikes. Trade unions and opposition groups organized protests against such measures.

(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)

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