China has given financially collapsing Sri Lanka the financial reassurances that are required by the IMF to unlock a 2.9 billion USD bailout package for the country. The situation has come after days when India strongly backed the island nation’s effort to take out a loan from the global lender to recover from the worst economic crisis.
The Sunday Times Newspaper has reported that China’s Exim Bank delivered a letter on Saturday. The letter grants Sri Lanka two years on repayment and agreement with the International Monetary Fund’s extended fund facility.
The report has been confirmed by the Sri Lankan officials who did not want to share their names.
The Chinese response came after India stepped in first to handle the situation.
Last week, India’s ministry of finance drafted a letter to the IMF to assure its support to Sri Lanka on debt restructuring. The decision has been taken ahead of the visit by the external affairs minister S Jaishankar to Colombo which ended on Friday.
Mr. Jaishankar stated during his visit that India has provided support to Sri Lanka for the bailout package.
The Sri Lankan officials have opened up saying that China has agreed to a short-term agreement to the loan that Sri Lanka owes to China and expects the creditors to work out a medium and long-term commitment.
Last year, the International Monetary Fund approved a 2.9 billion US dollar loan package for four years for Sri Lanka. The loan was provided to allow the island nation to restructure its debt with creditors – both bilateral and sovereign bonds.
As of June 2022, the island nation owed 40 billion USD based on bilateral, multilateral, and commercial loans as predicted by the treasury.
The loans provided by China contributed to 20 percent of the total loans owed by Sri Lanka and 43 percent of the bilateral loans.
Sri Lanka has reported the first-ever debt default in history. The declining forex reserves have worsened the situation, which caused protests around the country.
Sri Lanka was provided assurances from the creditors that they would receive 2.9 billion USD debt approval by IMF in March.
The country has introduced many stringent policies to overcome the situation which include tax hikes and increases in rates of utility. This triggered the trade unions and the other opposition groups as they started organizing protests.
Currently, the IMF bailout has been put on pause as the nation has continued to talk with the creditors to meet the global lender’s condition. It will help the country to overcome the crisis that took place since its independence in 1948.
Previously, Sri Lanka finished its negotiation regarding the restructuring process in Japan.
Despite that, India is the first country that has supported the International Monetary Fund’s assistance for Sri Lanka. Sri Lanka has played the China card too strongly against India. India was the first country to hand over a letter of support for the restructuring of debts by the IMF.
It has been a sign of economic recovery by the country. Previously, India funded Colombo with 4.5 billion USD to escape from the dire situation. The Indian authority has made it clear to the IMF that the Sri Lankan Government will seek equitable debt treatment from all other commercial creditors apart from financing contributions from the bank.
Sri Lanka’s efforts to overcome economic crisis:
Currently, The nation is on the verge of strengthening its relationship with international parties. It is seeking to improve relationships with Saudi Arabia with an increase in connectivity, investments, and employment opportunities. The respective official will meet the Arabian Prime Minister to further strengthen the ongoing discussions to enhance the connectivity in the region.
One of the far-sighted goals for the nation may be to enhance bilateral connections.
The island nation comprising 22 million people has been struggling since the previous year with varying challenges ranging from a shortage of dollars to exceeding inflation and a steady recession. The officials have extended a hand from IMF to recover its battered economy and bring it back on track.
edited and proofread by nikita sharma
