Crisis-struck SL can’t use US $ 1.5bn China swap: Coomaraswamy

• China worried IMF could push to delay payments
• Since with China, SL has a three-year swap, it could be termed as a loan
• A rescheduling would be a disadvantage to China
• Former governor confident staff-level agreement can be reached by end-June
• Closing IMF agreement would help increase confidence in nation’s financial assets

Crisis-struck Sri Lanka will not be able to access a US $ 1.5 billion credit line from China, as the latter is concerned the International Monetary Fund (IMF) could push for delays in repayments.

Bloomberg, quoting former Central Bank Governor Dr. Indrajit Coomaraswamy, said it is difficult for the Chinese to waive off the condition because it is a three-year swap and it might be termed a loan.

“There may be pressure from the IMF and others to include it in the stock of debt that we reschedule and therefore clearly that would be a disadvantage to the Chinese,” Dr. Coomaraswamy said.

India -- creditor and neighbour to Sri Lanka and China’s rival -- wants the IMF to treat China on par with other creditors. Meanwhile, India has used a recent summit of the Quad to ask Japan to also aid Sri Lanka, Bloomberg reported.

The Quad is an informal grouping comprising India, Japan, the US and Australia, whose unstated aim is to contain China’s power.

“There is some indication that the Japanese government may also now be more forthcoming in providing bridge financing,” reported Bloomberg, quoting the former governor from his address at a virtual Central Bank event held earlier this week. 

Prime Minister Ranil Wickremesinghe previously told Bloomberg that the percentage of loans from Japan and China are the same but the Chinese interest rates are higher. 

 The bridge loans are essential for the island nation to pay for food and fuel, with severe shortages stoking inflation to 40 percent. 

Sri Lanka has defaulted on foreign payments and is seeking both rapid aid and a longer extended fund facility from the IMF but must first show it has taken steps to reduce its existing debt burden, the news report said.

Dr. Coomaraswamy in his address also noted that Sri Lanka expects a staff-level agreement with the IMF as early as this month. While this does not mean cash will be disbursed, it will help increase confidence in the nation’s financial assets, the senior economist said. 

According to him, the first task, however, is to agree on a baseline for the debt sustainability analysis and those negotiations are underway. Once the baseline is established, Sri Lanka would need to work out what kind of offer it makes to the creditors.

“So, it’s going to take some months and given the fact that our reserves have gone toward almost zero, we need to find some ways of mobilising,” Dr. Coomaraswamy said.