IMF insists on creditor assurances to approve $2.9bn in loan for Sri Lanka

Access to funds will boost foreign-currency reserves of the island nation as it faces economic turmoil

Sri Lanka is seeking funding from the International Monetary Fund to support its economy. AP
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The International Monetary Fund said its approval for a $2.9 billion loan to bail out Sri Lanka will depend on the island nation securing assurances on debt relief from its bilateral creditors.

“Sri Lanka continues to engage with official bilateral creditors to obtain financing assurances and also continues to advance domestic reforms,” an IMF representative said in a statement on the progress of its Extended Fund Facility to the South Asian nation.

“As soon as adequate assurances are obtained and remaining requirements are met, including by the Sri Lankan authorities, the EFF arrangement for Sri Lanka can be presented to the IMF’s executive board for approval.”

The Paris Club — an informal group of rich western creditors — and India have provided formal support to the multilateral lender for the loan recast, leaving China — Sri Lanka’s biggest lender — as a holdout.

China, which accounts for about 52 per cent of the bankrupt nation’s bilateral debt, has instead offered term extensions through its state-owned Export-Import Bank of China, or Exim, while urging others to adopt a similar approach.

“The issuance of financing support documents by the Exim is a special arrangement based on China’s established policy position on the debt issue and reflects the traditional friendship between China and Sri Lanka,” China’s Foreign Ministry said in a statement to Bloomberg on Friday, without elaborating on whether it would provide the necessary creditor assurances.

“This will help Sri Lanka to resolve its debt issue in a speedy, effective and genuine manner, and fully demonstrates China’s sincerity and efforts to support Sri Lanka in achieving debt sustainability.”

Access to funds will boost foreign currency reserves that are barely above $2 billion and help the nation curb sky-high inflation, steer its $81 billion economy towards recovery after facing the worst recession since independence.

Chinese lending accounted for almost 20 per cent of Sri Lanka’s public foreign debt in May 2022, according research by the School of Advanced International Studies at Johns Hopkins University. The World Bank and Asia Development Bank held 10 per cent and 15 per cent, respectively.

“It is hoped that relevant international financial institutions can play a positive role, meet each other halfway and join forces to help Sri Lanka better cope with the crisis and get out of its predicament, “ the Chinese ministry said, reiterating a stance from a week ago.

Updated: February 12, 2023, 4:12 AM