The International Monetary Fund (IMF) is likely to approve a loan for Sri Lanka, even without China’s assurance of debt-restructuring support to unlock the US$.2.9 million bail out loan, several officials connected to negotiations said.
In an extraordinary policy action, the international lender is compelled to consider approving the island nation’s loan, as the only prerequisite hindering the go-ahead is China’s formal assurance, several familiar with the matter disclosed.
The International Monetary Fund’s strategy director said the goal of a new sovereign debt panel of creditors and borrowers met on Friday in India to try to reach understandings on common standards, principles and definitions for how to restructure distressed country debts.
Ceyla Pazarbasioglu, director of the IMF’s Strategy, Policy and Review Department noted that the Global Sovereign Debt Roundtable does not intend to discuss country-specific debt restructuring issues, but to address some of the broader impediments that have been delaying such relief.
“The Sri Lanka finance ministry and central bank authorities continue to seek from their official bilateral creditors financing assurances so that the Fund’s Executive Board can consider their request for an IMF arrangement,” an IMF spokesperson disclosed.
The lender said it was premature to discuss the precise IMF policy modalities that could be applied, adding that IMF staff continue to engage with Sri Lankan authorities on completing upfront policy measures.
“The Sri Lankan authorities continue to seek from their official bilateral creditors financing assurances so that the Fund’s Executive Board can consider their request for an IMF arrangement,” an IMF spokesperson said in a statement.
The news the IMF may consider extending aid without assurances from China comes ahead of U.S. Treasury Secretary Janet Yellen’s visit to India next week for G20 finance meetings, where the United States is reportedly going to focus on unblocking debt restructuring for distressed countries.
China today is the world’s largest bilateral lender, with most of it to developing economies and now a growing share of it coming under renegotiation.
Some reports suggest that as much as $118 billion in Chinese overseas loans have come under renegotiation since 2001, and according to some estimates this is 1 in every 4 dollars lent by China.
China provides debt relief and restructure through different ways – as part of the G-20 Debt Service Suspension Initiative (DSSI), through the Forum on China-Africa Cooperation (FOCAC), by way of ad-hoc relief, and contributing to the IMF’s Catastrophe Containment and Relief Trust (CCRT).
Through the DSSI, China has given debt service suspensions of around $1.3 billion in 23 countries (16 of which are in Africa).
On an ad-hoc basis China has provided debt relief to countries like Ecuador and Venezuela, where it extended grace periods and restructured maturing oil-backed loans.
However, China has been reluctant to offer generous debt restructuring on interest-bearing loans.
Chinese lenders like China Exim bank and China Development Bank typically treat restructuring or cancellation on a case-by-case basis.