China offers Sri Lanka debt moratorium as IMF help remains doubtful

Colombo: China’s Export-Import Bank has offered Sri Lanka a two-year moratorium on its existing debt and said it will support the country’s bid to secure a USD 2.9 billion loan from the International Monetary Fund (IMF) to tide over the unprecedented economic crisis. Asian giants China and India are the biggest bilateral lenders to Sri Lanka, an island-nation of nearly 22 million people that is facing its worst economic crisis in seven decades. Earlier in January, India wrote to the IMF saying it would commit to supporting Sri Lanka with financing and debt relief, but the island nation also needs the backing of China in order to reach a final agreement with the global lender. But, China’s January 19 letter, sent to the finance ministry, may not be enough for Sri Lanka to immediately gain the IMF’s approval for the critical loan, Sri Lankan officials with knowledge of the matter said. According to the letter, China Exim Bank said it was going to provide “an extension on the debt service due in 2022 and 2023 as an immediate contingency measure” based on Sri Lanka’s request. “You will not have to repay the principal and interest due of the bank’s loans during the above-mentioned period,” the letter said, adding China’s Exim Bank wanted to expedite the negotiation process with your side regarding medium and long-term debt treatment in this period. By the end of 2020, Sri Lanka owed China’s Exim Bank USD 2.83 billion or 3.5% of the island’s external debt, according to IMF data. Sri Lanka owes Chinese lenders a total of USD 7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed. “The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain,” China’s letter added. A spokesperson for the IMF confirmed that its management received India’s commitment but did not comment on the Chinese letter. Sri Lankan media reports suggested that the country expected more assistance from China and had hoped for a clear assurance from Beijing along the lines of what India provided to the IMF. “China was expected to do more,” a Sri Lankan official said, “This is much less than what is required and expected of them.” Debt Sustainability In a letter directly addressed to the IMF, India last week said that the financing or debt relief provided by the Export-Import Bank of India would be consistent with restoring debt sustainability under the IMF-supported program. Another government official with direct knowledge of the talks said that Sri Lanka would likely share China’s letter with the IMF and seek their opinion on its contents to gauge if stronger assurances were needed. Sri Lanka’s central bank chief P. Nandalal Weerasinghe said on Tuesday the country hoped to complete its debt restructuring in six months. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.