(Colombo) After several months of discussion, Sri Lanka could finally benefit from the IMF’s $2.9 billion rescue package, after China agrees to a restructuring of its loans to the Asian island du Sud, which “opens the way” for a decision by the institution on March 20.
The Chinese bank Exim wrote to the International Monetary Fund (IMF) on Monday to inform it of Beijing’s desire to “restructure” the credits granted to Sri Lanka, President Ranil Wickremesinghe said before the parliament in Colombo.
“As soon as the letter from the Exim Bank of China was sent to the IMF, I signed Sri Lanka’s letter of intent to follow the IMF program,” he said.
“Sri Lanka has now obtained the necessary assurances from its main bilateral donors. This paves the way for the study of the plan by the board of directors on March 20 with a view to a validation”, reacted Tuesday Krishna Srinivasan, director of the IMF for Asia and the Pacific.
Japan and India, other major creditors of Sri Lanka with others gathered within the Paris Club, had already given assurances of their desire to reduce the debt burden weighing on the island. Only China had not yet announced its intentions.
“A board agreement could also open up funding from other creditors, including the World Bank and the Asian Development Bank,” Srinivasan added.
According to Mark Plant, a member of the Washington-based Center for Global Development (CGD), this is a “very positive development. The IMF needed assurances from the creditors to ensure that the money it disbursed did not come back to them”.
Beijing had initially proposed a two-year moratorium on the repayment of its debts, but without accepting a “haircut” (reduction of the amount), an insufficient concession for the IMF, effectively blocking the rescue plan.
“We do not know the details of the Chinese proposals and they will probably not be made public. But if the plan is presented to the IMF’s board of directors, it means that they are sufficient and that its decision is almost certain,” Mr. Plant added.
Election test
The island of 22 million people defaulted on its $46 billion foreign debt in April 2022, during an unprecedented economic crisis that caused months of food and fuel shortages in Sri Lanka.
Just over $14 billion of total external debt is bilateral debt to foreign governments, 52% of which is China.
The government of Mr. Wickremesinghe has endeavored to obtain from the IMF a rescue plan of 2.9 billion dollars to restore public finances.
His administration imposed steep tax hikes, ended gasoline and electricity subsidies, and planned to sell loss-making state-owned enterprises to meet bailout conditions.
“The plan will give the government leeway to continue the reforms. But they will not be without cost and they will require budgetary discipline,” underlined Mark Plan.
The president warned last month that Sri Lanka would remain in default for at least three years and acknowledged that the austerity measures had caused public discontent.
Police have used tear gas and water cannons to break up several protests against these economic measures in recent weeks.
In this context, President Wickremesinghe faces his first electoral test on April 25 in local elections, the holding of which was postponed but finally confirmed on Tuesday by the electoral commission.
The Supreme Court had ordered the government last week to release the necessary funds for its organization after the president announced that the country did not have the means to organize them.