Sri Lanka had signed the Staff-Level Agreement with the international lender in September 2022, raising prospects of a bailout. It also began implementing the IMF’s recommendations about fiscal prudence – strengthening the economy, raising taxes and cutting government expenditure.
However, Sri Lanka has been tripped by China’s reluctance to restructure the loans that Beijing has lent – a prerequisite for an IMF loan. China is Sri Lanka’s biggest bilateral creditor with $7.3 billion loans out of a total of $14 billion bilateral debt, chalking up 52 per cent of its bilateral debt.
Talking to the media, Sri Lankan Minister of Transport & Highways and Mass Media, Bandula Gunawardena said that China has only offered a two-year moratorium on debt repayments. The minister said: “China has informed government-appointed agencies assigned for the debt restructuring process that they will extend a two-year moratorium on debt repayment.”
And this is what is holding back the IMF from giving a nod to the bailout for Sri Lanka’s bankrupt economy. The island nation has been striving to get a $2.9 billion loan from the IMF since last year.
India has, however, been supporting the island nation in its efforts to revive its economy. Besides the $4 billion support that India provided during Sri Lanka’s most distressing times in 2022, India’s Ministry of Finance even issued a letter to the IMF to confirm its support to Sri Lanka on the issue of debt restructuring.
In his January 2023 trip to Colombo, External Affairs Minister S. Jaishankar again reassured the top Sri Lankan leadership about support for the bailout package – becoming the first major lender to publicly back the country’s efforts to come out of its worst-ever economic crisis.
In a statement in Colombo, Jaishankar said: “India decided not to wait on others, but to do what we believe is right. We extended financing assurances to the IMF to clear the way for Sri Lanka to move forward. Our expectation is that this will not only strengthen Sri Lanka’s position but ensure that all bilateral creditors are dealt with equally.”
Jaishankar’s assurances gave hope to Colombo about other creditors falling in line, however, Beijing has shied away from providing that much-needed support to Colombo. Thanking India, the Governor of the Central Bank of Sri Lanka, Nandalal Weerasinghe said: “India has clearly given financial assurances which are acceptable to the IMF… first of all we should thank the Indian authorities for issuing that letter.”
Sri Lanka is likely to get that elusive $2.9 billion from the IMF in the first quarter this year provided China decides to play ball and dump its notorious debt trap diplomacy.
Ians