The US-based International Monetary Fund (IMF) is reported to be considering a bailout for Sri Lanka despite the island’s failure to secure support from China for its debt restructuring plan.
Bloomberg reports that this decision would be significant from the IMF’s earlier position which maintained that the $2.9 billion Extended Fund Facility offered to Sri Lanka would be dependent on the country’s ability to secure assurances from all bilateral creditors. China accounts for 52% of the island’s bilateral debt.
Thus far China has continued to decline agreements on debt restructuring with Sri Lanka but instead has offered a two-year moratorium on its debts and to continue negotiations. China has also called on multilateral agencies like the World Bank, IMF and Asian Development to re-structure their own loans.
This policy of continued delay has exacerbated the island’s economic woes leading to severe supply shortages; the depletion of the island’s foreign-currency reserves; and, rising inflation and borrowing costs.
The US ambassador for Sri Lanka slammed China’s response last month whilst speaking to BBC Newsnight claiming that the country was acting as a spoiler. In response, the Chinese embassy in Sri Lanka slammed the US claiming the ambassador’s statements were “baseless”.
Read more here: India backs Sri Lanka for IMF funding but China dithers
On Saturday Sri Lanka’s president is to attend a conference held in Bangalore India that will focus on debt restructuring and will be attended by delegates from Western lenders including the US, IMF, World Bank, as well other major lenders including China. This follows a virtual conference that was held last Friday.
Following this virtual conference, Sri Lanka’s president revealed that whilst the Paris Club had agreed to terms set by India China refused to do so and instead pushed for their own conditions.
“China is a world power so their procedure is different. We have no issue with that. There is still no agreement”, Sri Lankan President Wickremesinghe stated. Nevertheless, the Sri Lankan president maintained that he would continue to pursue negotiations with China’s foreign minister.
China’s Foreign Ministry reiterated its support for Sri Lanka noting the two-year moratorium and stating:
“Meanwhile, the Bank would like to have friendly consultation with Sri Lanka regarding medium- and long-term debt treatment in this window period; and the Bank will make best efforts to contribute to the debt sustainability of Sri Lanka”.
Wickremesinghe also highlighted that Sri Lanka would benefit from the IMF’s $2.9 billion Extended Fund Facility from March onwards and that the island has completed the 15 actions set out by the IMF.
The conditions the IMF set include increasing electricity tariffs and establishing new monetary laws for parliamentary approval. Economy Next also reports that the Sri Lankan government may also loosen its grip on a currency band to meet the fund’s requirements.
