Sri Lankan officials said China had agreed to support the country’s debt restructuring, an important step towards finalising a $2.9bn IMF rescue package and pulling the island out of an economic crisis.
The IMF package has been pending for months as Sri Lanka has sought to convince its creditors to agree a plan to restructure the bankrupt country’s foreign debts, a precondition for unlocking the funds.
President Ranil Wickremesinghe told parliament on Monday that his government had received a letter from the Export-Import Bank of China, and had informed the IMF.
While the contents of the letter were not immediately clear, Sri Lankan officials said it confirmed Beijing would support a restructuring according to the IMF’s parameters, following similar assurances from creditors including India and Japan in January.
While previous commitments from Beijing have not proved sufficient for the IMF, Wickremesinghe said this latest development should pave the way for the multilateral lender’s board to finalise the assistance programme later this month.
“Our part of the obligation is now complete and we hope the IMF will do their duty,” Wickremesinghe said, adding that the IMF bailout would unlock more financing from the World Bank and Asian Development Bank.
Eximbank directed requests for comment to past statements from China’s foreign ministry. Beijing had previously offered a two-year moratorium on debt and interest repayments from Sri Lanka, a condition that officials said the IMF did not endorse.
Policymakers have been closely watching Sri Lanka’s effort to secure approval from Beijing, whose importance as a global lender has surged over the past decade.
Sri Lanka last year became the first Asia-Pacific country to default in two decades, with low foreign currency reserves leading to severe shortages of vital imports such as food, fuel and medicine.
The crisis has turned Sri Lanka into a cautionary tale of economic mismanagement and the dangers that the shocks of high inflation and commodity prices pose to developing countries. In July, the island’s former president Gotabaya Rajapaksa fled the country and resigned following months of mass street protests.
Sri Lanka owes about $50bn in foreign debt to creditors including China, India and Japan as well as private bondholders.
It reached a preliminary, “staff level” agreement with the IMF in September and has imposed a series of unpopular measures designed to meet the lender’s requirements, including raising taxes and utility prices and cutting subsidies.
The US and other countries have in recent months criticised China for allegedly slowing down debt restructurings in Sri Lanka and Zambia, accusing Beijing of exacerbating economic suffering.
Speaking on a visit to India last month, US Treasury secretary Janet Yellen said China needed to be “constructive” and “come to the table” in debt negotiations.
Sri Lanka has previously started more than half a dozen IMF programmes but many were not completed. Wickremesinghe warned that Sri Lanka must co-operate with the lender’s requirements in order to restore credibility.
“All their conditions must be fulfilled,” he said, “or else they will stop working with us.”
Additional reporting by Cheng Leng in Hong Kong
