India’s ministry of finance recently issued a letter to the International Monetary Fund (IMF) to confirm its support to Sri Lanka on the issue of debt restructuring
Debt-ridden Sri Lanka on Wednesday thanked India for issuing the necessary guarantees sought by the IMF that would help Colombo to unlock the USD 2.9 billion bailout package.
India’s ministry of finance recently issued a letter to the International Monetary Fund (IMF) to confirm its support to Sri Lanka on the issue of debt restructuring.
Also, External Affairs Minister S Jaishankar during his recent visit to Colombo gave the required assurances to Sri Lanka's top leadership for the much-needed IMF bailout package, becoming the first major lender to publicly back the island nation's efforts to recover from its worst-ever economic crisis.
In a statement on Wednesday, the Governor of the Central Bank of Sri Lanka Nandalal Weerasinghe thanked India for issuing the necessary guarantees warranted by the IMF for unlocking the USD 2.9 billion bailout for the country.
"India has clearly given financial assurances which are acceptable to the IMF…..which has all the necessary assurances …..first of all we should thank the Indian authorities for issuing that letter," Weerasinghe said.
Sri Lanka, which is trying to secure a USD 2.9 billion bridge loan from the IMF, was negotiating to get financial assurances from its major creditors - China, Japan and India - which is the requisite for Colombo to get the bailout package.
The IMF bailout has been put on hold as Sri Lanka pursues talks with creditors to meet the global lender’s conditions for it.
The Washington-based global lender has asked Sri Lanka to restructure its debt by negotiating with the creditors.
On Sunday, China also gave Sri Lanka the financing assurances required by the IMF to unlock the bailout package.
Weerasinghe said that the debt restructuring talks had made good progress.
However, he declined to comment on the reported assurances issued by China to the Sri Lankan finance ministry that they would offer a 2-year repayment moratorium as its restructuring.
"The other creditors, the Paris Club and China are in the process of giving assurances. That process is making very good progress. It is a matter between the creditors and the IMF," he said.
Speculation was rife that the Chinese debt moratorium offer was not what the IMF would require and that it had fallen short of the need.
"I don’t think I can comment on that," Weerasinghe stressed when asked for a response to the Chinese position on the island’s debt negotiations.
Sri Lanka having missed its December 2022 target to obtain the facility now hopes for the release in the first quarter of 2023.
The Central Bank said that the economic activity is expected to recover later in 2023, compared to the large contraction in 2022
It said that the real economy was estimated to have contracted by 7.1 per cent in the nine months ending September 2022, on a year-on-year basis.
The island nation’s gross official reserves were estimated at USD 1.9 billion by the end of 2022 which includes a swap facility from China, equivalent to around USD 1.4 billion.
Sri Lanka in April declared its first-ever debt default in its history as the economic crisis triggered by forex shortages sparked public protests.
Months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July. Rajapaksa had started the IMF negotiations after refusing to tap the global lender for support.
With assurances from creditors, the 2.9 billion dollar facility could get the IMF board approval in March, officials said.