Sri Lanka nears IMF bailout as China, India back debt plan, says Wickremesinghe
- Bankrupt island nation needs a massive injection of International Monetary Fund cash as it continues to battle economic crisis, including runaway inflation
- Sri Lanka needs assurances from India, China and others before the IMF board can approve the loan programme
Sri Lanka’s debt negotiations with China and India “are successful”, according to President Ranil Wickremesinghe, bringing the bankrupt nation closer to clearing a major hurdle to unlock US$2.9 billion from the International Monetary Fund.
The nation’s president, who doubles as finance minister, spoke before the parliament on Tuesday without providing details. Before that, a person with knowledge of the matter said that India late on Monday formally notified that it would support Sri Lanka’s debt restructuring plan.
Sri Lanka needs similar assurances from China, Japan and so-called Paris Club members – official creditors who try to find sustainable solutions to payment difficulties experienced by debtor countries – before the IMF board can approve the loan programme. Sri Lanka concluded debt restructuring talks with Japan, Wickremesinghe said last week, without sharing details.
A delegation from China is expected to be in Sri Lanka until January 18 and Indian Foreign Minister S. Jaishankar is expected to visit from January 19 ahead of the island nation celebrating 75 years of independence from British rule on February 4.
The country of 22 million people is facing its worst economic crisis since independence from Britain in 1948, and policymakers have grappled with multiple challenges over the past year including widespread protests, a shortage of dollars, runaway inflation and a steep recession.
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Sri Lankan students scuffle with police over jailed anti-government activists
On Monday a delegation from China led by Vice-Minister Chen Zhou assured Prime Minister Dinesh Gunawardena that Beijing would stand by Sri Lanka during this crisis. “I’m confident that Sri Lanka will have good news very soon,” Chen said, according to a January 16 statement.
Until recently, debt negotiations yielded little progress since Sri Lanka defaulted in May, with creditors bickering on the size of losses they are willing to accept and whether local debt should be included in the restructuring.
Sri Lanka’s end-2022 target for IMF board approval has already been missed and Standard Chartered Plc predicted delays in the process. The latest remarks from officials offer some optimism.
“With very positive developments taking place over the past 12 hours, Sri Lanka is confident of reaching IMF board approval in the first quarter of 2023,” Sri Lanka’s junior Finance Minister Shehan Semasinghe said on Tuesday, when asked if India had assured support. He declined to elaborate.
The Colombo Stock Exchange (CSE) All-Share index advanced 1.3 per cent to 8,373.07, the most in three weeks.
A text message to an IMF representative in Washington was not immediately answered. India’s Finance Ministry spokesperson declined to comment.
An IMF bailout will give troubled Sri Lanka much-needed funds to continue mending an economy that has fallen deeper into recession amid sky-high inflation and elevated borrowing costs. While the government has made some progress, with basic goods like food and fuel becoming more available in the past months, Sri Lanka is still a long way from recovery. It has relied on repurposed funds from multilateral lenders and aid from friendly nations for relief.
