Sri Lanka expects IMF nod for $2.9bn package after China’s help

Sri Lanka is awaiting final approval from the International Monetary Fund (IMF) of a $2.9 billion loan in the third or fourth week of this month, the bankrupt island nation’s president says.

Ranil Wickremesinghe told Parliament on Tuesday that with renewed support from China, all funding needs have been met.

The South Asian nation of 22 million is grappling with its worst economic crisis since gaining independence from Britain in 1948. Last April, the country defaulted on its $46 billion foreign debt, causing food and fuel shortages across the country for several months.

Wickremesinghe said there are signs of an improvement in the economy, but the country still lacks foreign exchange for all its imports, making the IMF deal critical so that other lenders can also start releasing funds.

“Sri Lanka has completed all the preliminary steps that the IMF required,” he said.

“Last night we received a new letter from Eximbank of China. The head of the central bank and I signed a letter of intent and sent it to the IMF. As a result of this move and financial guarantees from India and the Paris Club, we expect the approval of the program either in the third or fourth week of March.”

The Wickremesinghe administration introduced a sharp increase in taxes, ended gas and electricity subsidies, and devised plans to sell loss-making state-owned enterprises to meet IMF bailout conditions.

It is unclear what new support China, the world’s largest sovereign creditor, gave to Sri Lanka on Monday.

In January, the Export-Import Bank of China offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure an IMF loan, which a Sri Lankan source said was insufficient at the time to meet IMF requirements. conditions.

China and India are Sri Lanka’s biggest creditors. By the end of 2020, Sri Lanka owed the Chinese Eximbank $2.83 billion, or 3.5 percent of the island’s external debt, according to the IMF.

In total, Sri Lanka owed Chinese creditors $7.4 billion, or nearly a fifth of the government’s foreign debt, by the end of 2022, the China Africa Research Initiative calculated.

Chinese Foreign Minister Qin Gang said on Tuesday that the country will continue to participate constructively in resolving international debt problems.

Asked on the sidelines of the annual parliament meeting in Beijing, Qin also said that China should be the last to be accused of creating debt traps in other countries and urged other parties to share the burden.

The Sri Lankan currency averaged 325 on Tuesday, up 12 percent, analysts said, from the central bank’s spot rate of 337.67. The increase was driven by increased dollar inflows from tourism and remittances, positive sentiment over the imminent approval of the IMF deal, and a decline in imports, they said.

“The possible announcement by the IMF has generated a lot of positives and more dollar-denominated loans are expected after the bailout is approved,” said Udishan Jonas, chief strategist at CAL Research.

“In addition, speculators who were hoarding dollars started to panic and convert money when the rupee began to appreciate.”

Sri Lanka has to pay an average of about $6 billion each year until 2029 and will have to continue to engage with the IMF, Wickremesinghe added.

Debt distressed countries such as Zambia and Sri Lanka have faced unprecedented delays in receiving IMF bailouts as China and Western economies clash over how to alleviate debt. Sri Lanka waited about 187 days to finalize the bailout following a staff-level agreement with the IMF.

That compares to the average of 55 days it took low- and middle-income countries over the past decade to go from pre-deal to board approval, according to publicly available data from more than 80 cases compiled by the Reuters news agency.