China Backs Sri Lanka Debt Plan, Paving Way For $2.9 Billion Worth Of IMF Loan

China on Monday offered a two-year loan moratorium to its close ally Sri Lanka for the years 2022 and 2023 to relieve Colombo’s short-term debt repayment pressure.

IMF financial support can only be provided for countries with sustainable debt.

On Monday, Zhang Wencai, Vice President of China’s Export and Import Bank, informed the Ranil Wickremesinghe government in a letter that the Bank is going to provide an extension on the debt service due in 2022 and 2023 as immediate contingency based on the request from Colombo.

The letter further stated that the bank would like to expedite the negotiation process with Colombo regarding the medium- and long-term debt treatment during 2023 with a view to finalizing debt treatment in the coming months.

Sri Lanka will not have to repay the principal and interest due to the Bank’s loan during 2022 and 2023.

China’s support of IMF’s extended fund facility of USD 2.9 billion over four years in eight six monthly installments to Sri Lanka is conditional on the outcomes of the two-year moratorium.

IMF financing may proceed before a debt restructuring is completed if official bilateral creditors provide the IMF with adequate assurances that they will take steps to help restore debt sustainability.

Sri Lanka has increased taxes, cut energy subsidies, and loosened its grip on the currency to secure the IMF loan in the past months.

President Ranil Wickremesinghe said, “We have completed our responsibilities. Now, I hope the IMF will do their part by the 3rd or 4th week of this month”.

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