The Export-Import (EXIM) Bank of China has offered Sri Lanka a two-year moratorium on its debt, saying it will support the country’s efforts to secure a $2.9 billion loan from the International Monetary Fund (IMF).
Earlier on Tuesday, P Nandalal Weerasinghe – who is the country’s central bank chief – said Sri Lanka was committed to meeting all debt repayments and hoping to complete debt restructuring negotiations in the next six months.
“There has been good progress this month with India already pledging financing assurances. We expect assurances from China and Japan soon,” Weerasinghe said at an event titled “Economic Outlook 2023”.
India had wrote to the IMF earlier this month that New Delhi would commit to supporting Sri Lanka with financing and debt relief, but the island nation also needed the backing of China in order to reach a final agreement with the global lender.
China’s Jan 19 letter, sent to the finance ministry, however, may not be enough for Sri Lanka to immediately gain the IMF’s approval for the critical loan, a Sri Lankan source said.
Regional rivals China and India are the biggest bilateral lenders to Sri Lanka, a country of 22 million people that is facing its worst economic crisis in seven decades.
According to the letter, the 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.
At the end of 2020, the Chinese bank had loaned Sri Lanka $2.83 billion which is 3.5 percent of the island’s debt, according to an IMF report released in March last year.
“…you will not have to repay the principal and interest due of the bank’s loans during the above-mentioned period,” the letter said.
“Meanwhile, we would like to expedite the negotiation process with your side regarding medium and long-term debt treatment in this window period.”
Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of its public external debt, by the end of last year, 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,” the letter said.
But the Sri Lankan source said the island nation had hoped for a clear assurance from Beijing on the lines of what India provided to the IMF. “China was expected to do more,” the source said, “This is much less than what is required and expected of them.”
Sri Lanka is racing to secure a $2.9 billion bailout from the IMF but requires the backing of both China and India, its biggest bilateral creditors, to reach a final agreement with the global lender.
“Once the IMF program is unlocked then we will start specific debt restructuring negotiations with both commercial and bilateral lenders,” the head of the island nation’s top bank said.
“We hope to complete this process in six months. The biggest uncertainty is the timeframe for the debt restructuring. It is only after debt sustainability is assured can Sri Lanka return to a sustainable growth path,” he added.