China EximBank said it was going to provide “an extension on the debt service due in 2022 and 2023 as an immediate contingency measure” based on Sri Lanka’s request. — China Daily
COLOMBO: The Export-Import Bank of China (China EximBank) is offering Sri Lanka a two-year moratorium on its debt and says it will support the country’s efforts to secure a US$2.9bil (RM12.4bil) loan from the International Monetary Fund (IMF).
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 that is facing its worst economic crisis in seven decades.
India wrote to the IMF earlier this month and said it would commit to supporting Sri Lanka with financing and debt relief, but the island nation also needs the backing of China in order to reach a final agreement with the global lender.
However, China’s letter on Jan 19, sent to the finance ministry, may not be enough for Sri Lanka to immediately gain the IMF’s approval for the critical loan, Sri Lankan sources with knowledge of the matter said.
According to the letter, China EximBank said it was going to provide “an extension on the debt service due in 2022 and 2023 as an immediate contingency measure” based on Sri Lanka’s request.
“You will not have to repay the principal and interest due on the bank’s loans during the above-mentioned period,” the letter said, adding that China EximBank wanted to expedite the negotiation process regarding medium and long-term debt treatment during this period.
By the end of 2020, Sri Lanka owed China EximBank US$2.83bil (RM12.1bil), or 3.5% of its external debt, according to IMF data.
In total, Sri Lanka owed Chinese lenders US$7.4bil (RM31.6bil), or nearly a fifth of its public external debt, by the end of 2022, calculations by the China Africa Research Initiative showed.
“The bank will support Sri Lanka in your application for the IMF’s Extended Fund Facility to help relieve the liquidity strain,” China’s letter added.
An IMF spokeswoman confirmed that its 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.
One Sri Lankan source, who asked not to be identified because of the sensitivity of the confidential discussions, said the country had hoped for a clear assurance from Beijing along the lines of what India provided to the IMF.
“China was expected to do more,” the source said. “This is much less than what is required and expected of them.”
In a letter directly addressed to the IMF, India said last week that the financing or debt relief provided by the Export-Import Bank of India would be consistent with restoring debt sustainability under the IMF-supported programme.
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 opinion on its contents to gauge if stronger assurances were needed.
Comparing the letters showed that India’s was “comprehensive” in acknowledging debt restructuring parameters from the IMF for middle-income countries such as Sri Lanka, another person with knowledge of the debt discussions added.
Meanwhile, China’s letter only points to a rebuilding of foreign exchange reserves as being key for Sri Lanka without referencing ratios for debt and financing needs, the person said.
“The fact that China’s letter could be acceptable to the IMF will be watched very closely,” said the person on condition of anonymity.
It is unclear what debt relief major lenders such as China, the world’s largest bilateral lender, and India are willing to make further down the line.
Western countries such as the United States and multilateral lenders are pressing Beijing to offer debt relief to emerging economies in distress and have criticised Beijing for its slow progress.
However, news from Zambia on Monday suggests China could be playing a more proactive role.
Speaking in the capital, Lusaka, the head of the International Monetary Fund, Kristalina Georgieva, said the lender had reached an understanding in principle with China about a debt restructuring strategy. — Reuters
