China Silent On Debt Reduction Targets For Sri Lanka To Get IMF Bailout Loan

China on Wednesday said it supports debt-trapped Sri Lanka's efforts to get the much-needed IMF bailout facility but parried questions on reports that it will not follow the global lender’s debt reduction targets for it to clear the relief package. 

China’s EXIM Bank has issued a letter granting Sri Lanka a two-year moratorium on repayment and agreeing with the IMF's Extended Fund Facility (EFF). Sri Lankan officials, however, said that China’s offer is not the same as a written assurance to the IMF and it may not be enough for the IMF board to approve the committed USD 2.9 billion provisional package for Sri Lanka. Asked on Wednesday at a regular media briefing if China will not follow the IMF's debt reduction targets, Chinese Foreign Ministry spokesman Wang Wenbin said that China’s financial institutions are holding consultations and stand ready to work for easing Sri Lanka’s difficulties. “China’s EXIM bank has the bilateral creditor as extended a support document for Sri Lankan debt. China supports Sri Lanka to apply for IMF loans, call on creditors to offer comparable debt solutions and China is doing its best to call on multilateral creditors to do their best to solve the Sri Lankan issue,” he said.

On Wednesday, Sri Lankan President Ranil Wickremasinghe said he is hopeful that Sri Lanka will receive the IMF board approval for a USD 2.9 billion bailout package by March. China’s official news agency Xinhua quoted him as saying in Colombo that Sri Lanka reached a preliminary agreement with the IMF to receive an EFF programme in 2022. Wickremesinghe said that the Sri Lankan economy is now stabilising and it will be able to begin the debt restructuring process soon. He said that the country needs to have political stability to carry out the debt restructuring process.

Sri Lanka suspended external debt repayment in April 2022 and entered negotiations with the IMF for a bailout package. Last month India’s ministry of finance issued a letter to the IMF to confirm its support to Sri Lanka on the issue of debt restructuring. Later External Affairs Minister S Jaishankar during his visit to Colombo announced that India has given the required assurances to Sri Lanka for the bailout package.Chinese officials are scheduled to attend the IMF meeting with the Paris Club of government creditors. The Paris Club said last week that "The Paris Club members, as well as Hungary and Saudi Arabia, urged other official bilateral creditors, including China to do the same in line with IMF programme parameters as soon as possible". Sri Lankan officials said that China is not willing to follow the debt sustainability analysis (DSA) targets set by the IMF for Sri Lanka to obtain the loan, unwilling to give a moratorium on the island nation’s debt beyond two years which may not be enough. According to official figures released by Sri Lanka by the end of June 2022, Sri Lanka owed nearly USD 40 billion to bilateral, multilateral and commercial loans and the Chinese loans amounted to 20 per cent of the total debt owed.

Sri Lanka declared its first-ever debt default in its history last April as the economic crisis triggered by forex shortages sparked public protests. India has pitched in about USD four billion to Sri Lanka as assistance to tide over the fuel and food crisis.