IMF bailout further delayed due to unclear assurance by China

Even after leading creditors and the Paris Club have assured that they will re-structure debt of Sri Lanka, the International Monetary Fund (IMF) bailout has not been cleared yet due to unclear assurance given by other creditors including China to restructure debt of Sri Lanka.

The IMF said Sri Lanka still needs adequate assurances from other bilateral creditors for its programme to be approved. Last month India's Ministry of Finance issued a letter to the IMF to confirm its support to Sri Lanka on the issue of debt restructuring.

The Paris Club said last week that "The Paris Club members, as well as Hungary and Saudi Arabia, urged other official bilateral creditors, including China to do the same in line with IMF programme parameters as soon as possible".

An IMF spokesperson said that they welcome the recent statement by the Paris Club to provide financing assurances to Sri Lanka following the assurances provided by India but added the country still needs assurance from other creditors.

Sri Lanka is still negotiating with China to get assurances on re-structuring debt in line with the requirements of the IMF.

President Ranil Wickremesinghe, in an address to the new session of Sri Lanka’s Parliament in early February, said, “We are in direct discussions with China. We have received positive responses from all parties. We are now working towards unifying the approaches of other countries and that of China.”

Talks with China to restructure debt keep getting dragged on. At the end of last year, Sri Lanka was told by China to resume talks in this regard once their Communist Party Congress celebrations were over. Though discussions have resumed at the end of the Congress celebrations, no positive outcome can be seen so far.

Against the backdrop of the Chinese Government not officially agreeing to restructure the debt of Sri Lanka, the Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt.

The Chinese Exim Bank’s January 19 letter, however, will not be enough for Sri Lanka to immediately gain the IMF's approval for the critical loan.

As China is yet to provide official assurances on debt sustainability, IMF Board approval of a USD 3.9 billion IMF programme over four years may take some time.

Meanwhile, the Ceylon Chamber of Commerce recently said it was looking forward to the assurances from China to restructure Sri Lanka’s debt.

“We look forward to similar assurances from other commercial and bilateral creditors including China, in line with IMF requirements that will result in a swift approval of the IMF programme,” a Ceylon Chamber statement said.

“The Chamber appreciates the support given by China in the economic development of Sri Lanka and requests to work with the IMF in order for Sri Lanka to receive its much-needed funding as a key bilateral creditor,” it added. 

The Chamber said the local business community highly appreciates the timely financing assurances provided by India, Paris Club members including members such as Japan, US and UK, and non-members such as Hungary.

Meanwhile, Sri Lanka’s State Minister of Finance Shehan Semasinghe said Sri Lanka is in the process of getting the required financial assurances.

“The Chinese EXIM BANK has provided some confirmation so far. Accordingly, we are confident that China's financial assurance will also be received soon. We are continuing bilateral discussions for that. The necessities are being prepared for the approval of the IMF and expecting to receive it at the end of this quarter. With that, our country will achieve its stability in a strong economy,” he said.

The State Minister said Sri Lanka treats all creditors at an equal, comparable and also a transparent way.

“With this, we assure our trustworthiness to all the countries that support us. Therefore, our debt restructuring process would never break the trust they have on us. In fact, no one has pressured us on this debt restructuring,” he said.

Meanwhile, Chinese Foreign Ministry spokesman Wang Wenbin said at the regular media briefing this week that China's financial institutions are holding consultations and stand ready to work for easing Sri Lanka's difficulties.

"China's EXIM bank has the bilateral creditor as extended a support document for Sri Lankan debt. China supports Sri Lanka to apply for IMF loans, call on creditors to offer comparable debt solutions and China is doing its best to call on multilateral creditors to do their best to solve the Sri Lankan issue," he said when asked if China will not follow the IMF's debt reduction targets.

However, Sri Lankan officials said that China is not willing to follow the debt sustainability analysis (DSA) targets set by the IMF for Sri Lanka to obtain the loan, unwilling to give a moratorium on Sri Lanka's debt beyond two years which may not be enough.

China still has differences over periods of loan moratorium and debt restructuring with the IMF’s Executive Board scheduled to meet next month.

Under the circumstances, the IMF can either give loan on arrears and then wait for China to come on board by IMF spring meeting or later this year. Sri Lanka owes nearly USD 7.8 billion dollars to China which includes both bilateral lending from EXIM bank and commercial lending from Chinese development Bank.