By:Staff WriterColombo (LNW): Sri Lanka expects the Executive Board of the International Monetary Fund (IMF) to clear the next tranche of IMF financing of about US$334 million to be disbursed following a deal reached between Sri Lanka and China.
The Finance Ministry said that the Government of Sri Lanka reached an agreement on the key principles and indicative terms of a debt treatment with the Export-Import Bank of China (“China Exim bank”).
Govenmnt keeps high hopes that Sri Lanka would reach a deal with other creditors at the IMF and World Bank annual meetings in Marrakech, but they have reportedly been grappling to reach a consensus.
They might be concerned that China managed to negotiate special terms with regards to the loans, according to Dhananath Fernando of Colombo based think tank Advocata.
If they got preferential treatment, it means another creditor will have the bear the burden, according to Mr Fernando.
Japan, India and France say they were not informed of the EXIM deal and have asked to be given the same terms as China in restructuring discussions.China is known to cut these kinds of deals in secret and keep the details private
Sri Lanka has a total foreign debt of $46.9bn, 52% of which is owed to China, its largest lender.
Reaching a deal with all of its creditors will allow Sri Lanka to keep accessing funds from a $3bn bailout programme with the International Monetary Fund (IMF).
The next tranche – worth $330m – has been on hold since last month after Sri Lanka and the IMF failed to agree on the terms for its disbursement.
Sri Lanka has said all its creditors will be treated equally, and requested lenders to reduce outstanding debt by 30%.
Colombo secured a $3bn loan from the IMF earlier this year. The World Bank agreed to a $600m loan in 2022.
The Sri Lankan Government commends the engagement and continuous support of China Exim bank in reaching this agreement in principle, which demonstrates a mutual commitment in line with the goal/objective of restoring public debt sustainability consistent with the IMF-supported program.
The Sri Lankan authorities hope that this landmark achievement will provide an anchor to their ongoing engagement with the Official Creditor Committee and commercial creditors, including the bondholders.
It should also facilitate approval by the IMF Executive Board of the first review of the IMF-supported program in the coming weeks, allowing for the next tranche of IMF financing of about US$334 million to be disbursed.
Secretary to the Treasury K M Mahinda Siriwardana said.that the the Government says in the next few weeks, the Sri Lankan authorities and China Exim bank will actively work on formalizing and implementing the agreed parameters of the debt treatment.