Sri Lanka is inching closer to receiving a $2.9 billion bailout programme from the International Monetary Fund (IMF) amid successes in debt restructuring discussions with India and China.
Long-awaited Breakthrough
Until last month, Sri Lanka’s Central Bank Governor P. Nandalal Weerasinghe said that the island nation was still awaiting reassurances from its three major lenders — India, China, and Japan. However, recent developments suggest that Colombo has achieved some progress in this regard.
Speaking to Reuters, a Sri Lankan official source said that India wrote to the IMF to extend support for the island nation’s debt restructuring plan. The Hindu further reported that India sent “financing assurances” to the IMF.
However, India’s finance ministry did not comment on the development. In addition, there are no details about China’s support for Sri Lanka’s debt restructuring.
We are getting closer to EFF program with IMF, though bailout alone will not solve our deep economic issues it will be a catalyst for reforms and confidence building measure to rebuilding the economy! https://t.co/B6aRqOymeh
— M U M Ali Sabry (@alisabrypc) January 18, 2023
Nevertheless, Sri Lanka’s cabinet spokesperson, Bandula Gunawardana, stressed that Colombo would likely finalise the IMF deal in the first quarter of 2023. Likewise, junior Finance Minister Shehan Semasinghe said on Tuesday that developments in the “past 12 hours” have boosted the government’s confidence regarding securing an IMF deal.
India, China’s Debt Restructuring
As Sri Lanka’s biggest lenders, the IMF has said that India and China must restructure their debts before the institution can release the $2.9 billion loan. The IMF previously said it would also require a “collaborative agreement with private creditors.”
Addressing the Parliament on Tuesday, Sri Lankan President Ranil Wickremesinghe said discussions with the two Asian powers have been “continuing” and “successful” so far. The talks with New Delhi and Beijing commenced in September 2022.
Media Release on the "Spoiler" hypocrisy
— Chinese Embassy in Sri Lanka (@ChinaEmbSL) January 17, 2023
⁉️Who is the largest shareholder of the IMF with a veto power?
⁉️Who is keeping printing 💵?
⁉️Who owns 40% 🇱🇰 external debt stock with highest interest rates?
⁉️Who sued Sri Lanka in its federal court immediately after its default?
🧵 pic.twitter.com/mphohqxDCs
As the third-largest lender, Japan must also agree to the debt restructuring plan.
Debt restructuring has been troublesome since Sri Lanka defaulted on its foreign debt in May. Lenders have disagreed about the extent of losses they are willing to accept. Foreign lenders have also expressed scepticism about including domestic lenders in the debt restructuring talks.
In this regard, Indian Foreign Minister S. Jaishankar will visit Sri Lanka on 19 January. Similarly, a Chinese delegation is scheduled to visit Colombo on 18 January. In the run-up to the meet, a delegation member, Vice Minister Chen Zhou, spoke to Sri Lankan PM Dinesh Gunawardena and reassured him that “Sri Lanka will have good news very soon.”
Beijing has long obstructed the success of the talks for the abovementioned reasons. To this end, US Ambassador to Sri Lanka Julie Chung earlier this week urged China to refrain from being a “spoiler” in the discussions. China retorted by highlighting the Western “hypocrisy,” given that money from private lenders belonging to these countries comprises 40% of Sri Lankan debt.