SL moves closer to IMF bailout following India’s guarantee

Sri Lanka has moved closer to securing a crucial $2.9 billion loan from the International Monetary Fund (IMF) after India offered Sri Lanka the assurances it needed from its major creditors for the bailout package. 

During a recent visit to Sri Lanka, Indian External Affairs Minister S. Jaishankar said that India did not wait for other bilateral creditors but did “what is right” for Sri Lanka’s economic recovery.

Indian External Affairs Minister Jaishankar said this while commenting on India’s financial guarantee given to the IMF to help Sri Lanka recover economically.

The IMF on Monday said India has committed to help ease the debt burden of Sri Lanka as part of a possible IMF-supported programme.

Reuters reported last week that India had told the IMF it strongly supports Sri Lanka's debt restructuring plan as the country seeks a $2.9 billion loan from the global lender.

"Sri Lanka is engaged with other official bilateral creditors to obtain similar assurances," an IMF spokesperson said in a statement on Monday.

"As soon as adequate assurances are obtained and remaining requirements are met, including by the Sri Lankan authorities, a Fund-supported program for Sri Lanka can be presented to the IMF's Executive Board for approval that would unlock much needed financing."

Sri Lanka requires the backing of China and India -- its biggest bilateral lenders -- to reach a final agreement with the IMF that is essential to help the country emerge from its worst financial crisis in seven decades.

Meanwhile, during his two-day official visit that he undertook to Sri Lanka from January 19,  Indian External Affairs Minister Jaishankar said, “Without waiting for others, we decided to do what we believe is right.”

"We believe they should help restore Sri Lanka's economy. We gave a financial guarantee to the IMF, which will make it easier for Sri Lanka to move forward. Our hope is that it will further strengthen Sri Lanka's position and allow all bilateral creditors to act equally," he said.

He further said that India has always helped for the political and economic stability of Sri Lanka.

He said the primary purpose of his visit to Colombo was to express India’s solidarity with Sri Lanka during these difficult moments.

“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,” he said.

India’s External Affairs Minister also said in a turbulent world, it is essential that India and Sri Lanka steady their trade and “The use of rupee settlement for trade is obviously in our mutual interest.”

 “I would like to underline that India is a reliable neighbour, a trustworthy partner, one who is prepared to go the extra mile when Sri Lanka feels the need.

“My presence here today is a statement about Prime Minister Modi’s commitment to ‘Neighbourhood First’. We will stand by Sri Lanka in this hour of need and are confident that Sri Lanka will overcome the challenges that it currently faces,” Jaishankar reiterated.

However, Sri Lanka’s other creditors including China have delayed positively responding to Sri Lanka’s requests on debt restructuring. This was criticized not only by the Sri Lankans but also others who wish to see Sri Lanka recover.

US Ambassador in Sri Lanka Julie Chung told BBC Newsnight on January 11 that the greater onus to move with regard to Sri Lanka’s debt restructuring, a prerequisite for an IMF bailout, was on China, as the biggest bilateral lender

“We hope that they do not delay because Sri Lanka does not have time to delay. They need these assurances immediately. For the sake of the Sri Lankan people, we certainly hope China is not a spoiler as they proceed to attain this IMF agreement,” she said.

The US Ambassador’s statement was heavily criticized by China which said the US Ambassador has made baseless accusations and lecturing.

“Our US colleague should have at least asked herself: Who is the single largest shareholder of the IMF, with a veto power over major policy decisions? Who keeps printing the US dollar, with more than $3 trillion in 2020 alone? Who are those private creditors owning 40% of Sri Lanka’s total external debt stock, with the highest interest rates? Who sued Sri Lanka, in its federal court, immediately after the island’s default?

“Isn’t it hypocrisy at its finest for our US colleague to play the blame game instead of a self-examination? After all, why didn’t the US take decisive actions in the IMF for a more comfortable solution for Sri Lanka or extend grant to the island with the rocket amount of US dollars they print every year, instead of sowing discord between China and Sri Lanka? Both Chinese and Sri Lankan people are wise enough to judge, without any foreign lecturing, who is the spoiler of our development,” the Chinese Embassy in Colombo said.

However, the Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt.

China's January 19 letter, sent to the finance ministry of Sri Lanka, however, may not be enough for Sri Lanka to immediately gain the IMF's approval for the critical loan, a Sri Lankan source with knowledge of the matter said.