- China offers debt service relief in 2022, 2023
- Sri Lankan sources unsure if China’s letter will be enough for IMF
- Broad IMF-China deal on Zambia could provide clues
NEW DELHI/COLOMBO, Jan 24 (Reuters) – The Export-Import Bank of China has offered Sri Lanka a two-year debt moratorium and said it would support the country’s efforts to secure a $2 loan. $.9 billion from the International Monetary Fund, according to a letter reviewed by Reuters.
Regional rivals China and India are the biggest bilateral lenders to Sri Lanka, a country of 22 million people facing its worst economic crisis in seven decades.
India wrote to the IMF earlier this month saying it would pledge to support Sri Lanka with financing and debt relief, but the island nation also needs China’s support in order to reach a final agreement with the global lender.
However, China’s Jan. 19 letter, sent to the finance ministry, may not be enough for Sri Lanka to gain immediate IMF approval for the critical loan, Sri Lankan sources familiar with the matter said. ‘affair.
According to the letter, China EximBank said it would provide “an extension of debt service due in 2022 and 2023 as an immediate emergency measure” based on Sri Lanka’s request.
“You will not be required to repay principal and interest due on loans from the bank during the aforementioned period,” the letter said, adding that China EximBank wanted to expedite the negotiation process with your party regarding the treatment of debt at medium and long term in this country. period.
At the end of 2020, Sri Lanka owed China EximBank $2.83 billion, or 3.5% of the island’s external debt, according to IMF data.
In total, Sri Lanka owed $7.4 billion to Chinese lenders, nearly a fifth of public external debt, by the end of 2022, according to calculations by the China Africa Research Initiative.
“The bank will support Sri Lanka in your application for the IMF’s Extended Financing Facility (EFF) to help relieve pressure on liquidity,” the letter from China added.
An IMF spokeswoman confirmed that IMF management had received India’s commitment but did not comment on the Chinese letter.
Sri Lanka’s foreign and finance ministries and China’s foreign ministry did not respond to questions from Reuters.
A Sri Lankan source, who asked not to be identified due to the sensitivity of the confidential discussions, said the country had hoped for a clear assurance from Beijing along the lines of what India had provided to the IMF.
“China was supposed to do more,” the source said, “it’s far less than what is required and expected of them.”
In a letter directly to the IMF, India said last week that financing or debt relief provided by the Export-Import Bank of India would be consistent with restoring debt sustainability under the program. supported by the IMF.
Another government source with direct knowledge of the talks told Reuters that Sri Lanka would likely share China’s letter with the IMF and seek their views on its contents to assess whether stronger assurances were needed.
Comparison of letters showed India was ‘comprehensive’ in recognizing IMF debt restructuring parameters for middle-income countries such as Sri Lanka, another person familiar with debt talks added . Meanwhile, China’s letter only states that a replenishment of foreign exchange reserves is essential for Sri Lanka without referring to debt ratios and financing needs, the person said.
“Whether China’s letter may be acceptable to the IMF will be watched very closely by all private creditors,” the person said on condition of anonymity.
It is unclear how much debt relief major lenders such as China – the world’s largest bilateral lender – and India are prepared to do later.
Western countries such as the United States and multilateral lenders are pressuring Beijing to offer debt relief to struggling emerging economies and have criticized Beijing for slow progress.
However, news from Zambia on Monday suggests China could play a more proactive role. Speaking in the capital Lusaka, International Monetary Fund chief Kristalina Georgieva said the lender had reached an agreement in principle with China on a debt restructuring strategy.
China will de facto accept a reduction in NPV (net present value) on the basis of a significant lengthening of maturities and reduction of interest, Georgieva said.
The head of the Central Bank of Sri Lanka, P. Nandalal Weerasinghe, said on Tuesday that the country hoped to complete debt restructuring in six months.
Reporting by Devjyot Ghoshal and Uditha Jayasinghe, additional reporting by Jorgelina do Rosario and Karin Strohecker; Editing by Jacqueline Wong, William Maclean and Emelia Sithole-Matarise
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