In a turnaround, China offers to support Sri Lanka’s IMF assistance bid

Significantly, Colombo is also seeking bridge financing through bilateral means from India and China as the negotiations with the IMF will take at least three-four months. So far, New Delhi has provided assistance worth $2.4 billion dollars in form of lines of credits and loan repayment deferment.

May 03, 2022
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China expressed its willingness to offer its fullest support to crisis-hit Sri Lanka in securing the assistance from the International Monetary Fund (IMF), Chinese Ambassador to Sri Lanka Qi Zhenhong said, in a departure from his earlier statement where he said the IMF talks will have an impact on Sri Lanka’s negotiation with China for $2.5 billion in loans. 

“As a major shareholder of the IMF, China is willing to play an active role in encouraging the IMF to positively consider Sri Lanka’s difficulties and reach a proper agreement as soon as possible,” Zhenhong said after he met with Sri Lankan Finance Minister Ali Sabry.  

Crisis-hit Sri Lanka declared default last month on all its external loan repayment obligations, totaling around $51 billion, after it plunged into a severe foreign exchange crisis. The government approached the IMF for assistance as the country faced a shortage of fuel, food, and essentials.

Of the total $51 billion in loans, Chinese loans to Sri Lanka account for almost $5 billion, roughly ten percent. China was initially worried about Sri Lanka’s proposed restructuring of debt with the IMF assistance.     

Reacting to Colombo’s move, the Chinese envoy said on 25 April, “The Sri Lankan Government going to the IMF has had an impact on the discussions.” The planned debt restructuring, an important part of the IMF program, he added, would have an impact on future loans from China.

Significantly, Colombo is also seeking bridge financing through bilateral means from India and China as the negotiations with the IMF will take at least three-four months. So far, New Delhi has provided assistance worth $2.4 billion dollars in form of lines of credits and loan repayment deferment. 

With China, Colombo is still in talks on securing a financial assistance package, including a $1 billion loan facility and another $1.5 billion in the form of a line of credit. However, the Chinese ambassador said this week that Beijing will closely follow the IMF talks as the countries that had sought assistance from the IMF had faced tough conditions.

(SAM)

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