China has agreed to support Sri Lanka’s debt restructuring in a crucial step towards securing a $2.9bn IMF rescue package and pulling the country out of an economic crisis.
Confirming Beijing’s move on Tuesday, the fund’s Asia-Pacific director Krishna Srinivasan said it “paves the way” for the IMF board to consider finalising the assistance programme at a meeting on March 20.
The IMF package has been pending for months as Sri Lanka sought to convince its creditors to agree a plan to restructure the bankrupt country’s foreign debts, a precondition for unlocking the funds.
“Sri Lanka has now received financing assurances from all major bilateral creditors,” Srinivasan said. China’s agreement follows similar commitments from creditors including India and Japan in January.
Sri Lanka’s president Ranil Wickremesinghe told parliament earlier on Tuesday that his government had received a letter of support from China’s Eximbank.
“Our part of the obligation is now complete and we hope the IMF will do their duty,” Wickremesinghe said, adding that the IMF bailout would unlock more financing from the World Bank and Asian Development Bank.
Srinivasan said the IMF package would “support the authorities’ programme of ambitious reforms, that [the country has] already embarked upon, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth”.
Eximbank directed requests for comment to past statements from China’s foreign ministry. Beijing had previously offered a two-year moratorium on debt and interest repayments from Sri Lanka, a condition that officials said the IMF did not endorse.
Policymakers have been closely watching Sri Lanka’s effort to secure approval from Beijing, whose importance as a global lender has surged over the past decade.
Sri Lanka last year became the first Asia-Pacific country to default in two decades, with low foreign currency reserves leading to severe shortages of vital imports such as food, fuel and medicine.
The crisis has turned Sri Lanka into a cautionary tale of economic mismanagement and the dangers that the shocks of high inflation and commodity prices pose to developing countries. In July, the island’s former president Gotabaya Rajapaksa fled the country and resigned following months of mass street protests.
Sri Lanka owes about $40bn in public debt to creditors including China, India and Japan as well as private bondholders.
It reached a preliminary, “staff level” agreement with the IMF in September and has imposed a series of unpopular measures designed to meet the lender’s requirements, including raising taxes and utility prices and cutting subsidies.
The US has in recent months criticised China for allegedly slowing down debt restructurings in Sri Lanka and Zambia, accusing Beijing of exacerbating economic suffering.
Speaking on a visit to India last month, US Treasury secretary Janet Yellen said China needed to be “constructive” and “come to the table” in debt negotiations.
Sri Lanka has started more than half a dozen IMF programmes in the past but many were not completed. Wickremesinghe warned that the country must comply with the lender’s requirements in order to restore its credibility.
“All their conditions must be fulfilled,” he said, “or else they will stop working with us”.
Additional reporting by Cheng Leng in Hong Kong
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