The International Monetary Fund (IMF) has expressed the belief that Sri Lankan authorities secure financing assurances from all its bilateral creditors soon, so that the Fund’s Executive Board could give its nod to unlock the envisaged US$ 2.9 billion bailout package to support the crisis-hit economy, a top IMF official said.
Sri Lanka has already received clear and specific financing assurances from India and the Paris Club nations expressing their support to restructure the debt Sri Lanka owes to them. But China, which is Sri Lanka’s largest bilateral creditor, hasn’t been responding positively as expected.
The Exim Bank of China in a letter to Sri Lankan authorities offered a two-year moratorium on China’s debt to Sri Lanka, which however fell short of a fully-fledged financing assurance.
Sri Lanka’s Foreign Minister this week said the country has completed all prior actions for the envisaged facility and implied that only China’s financing assurance remains an obstacle for Sri Lanka to unlock IMF funding.
“Sri Lankans are making every effort possible to get these assurances and as the IMF, we are at all levels helping them with that.
The best-case scenario is that we get these assurances and in which case we could go to the Board. I’m hopeful that we could get the kind of assurances we need from China, which will allow us to go to the Board in due course,” IMF Asia Pacific Head Krishna Srinivasan said.
There were news reports this week citing unnamed sources that IMF Executive Board may consider approving the bailout package for Sri Lanka even without China’s financing assurances.
However, Srinivasan downplayed those reports as speculation. Meanwhile, he said once Sri Lanka’s programme with the IMF is approved, there is time for the country to engage in good faith negotiations with its private creditors.
“Sri Lankan authorities have already started engaging with the private sector creditors very actively. Already, there is a letter from bond holders expressing support. Those negotiations will come into fruition after the programme is approved,” Srinivasan said.
According to World Bank estimates, Sri Lanka has an external debt burden of more than $52bn as of December. Of that, nearly 40 percent is owed to private creditors, including financial institutions, while the rest is owed to bilateral creditors where China (52 percent), Japan (19 percent) and India (12 percent) are the largest ones.
Locked out of international markets and unable to roll over its foreign currency debt, Sri Lanka now has to figure out how it will repay around $25 billion in principle and interest for its foreign currency debt over the next five years. Restructuring the debt is one option.