While China has only offered a two-year debt moratorium to the island nation that granted Beijing a 99-year lease on Hambantota Port, India has offered Sri Lanka full support for the IMF Extended Fund Facility in accordance with the debt sustainability analysis, which calls for a 10-year loan moratorium and a 15-year debt restructuring.
On the basis of the IMF-Paris Club debt sustainability analysis, India has offered Sri Lanka unconditional and unrestricted support; however, China on Monday offered its close ally a two-year loan moratorium for the years 2022 and 2023 to ease Colombo’s immediate debt repayment pressure.
Mr. Zhang Wencai, Vice President of China’s Export and Import Bank, informed the Ranil Wickremesinghe government in writing on Monday that the Bank is going to provide an extension on the debt service due in 2022 and 2023 as an immediate contingency based on the request from Colombo. The IMF-Paris club had proposed a 10-year moratorium on Sri Lankan debt and a 15-year period for loan restructuring.
As a result, Sri Lanka won’t be required to pay back the loan’s principal and interest during the years 2022 and 2023. In the letter, it was also stated that the bank wanted to speed up talks with Colombo in 2023 to discuss how to treat medium- and long-term debt in order to complete the process in the following months. In essence, this means that China’s support for the IMF’s extended fund facility, which will provide Sri Lanka with USD 2.9 billion over four years in eight six-monthly installments, is dependent on how the two-year moratorium plays out.
In the letter, the Chinese Exim Bank Vice President stated: “ The Bank will support Sri Lanka in your application for IMF EFF to help relieve the liquidity strain. In the meantime, adequate contributions from all the creditors would be a critical condition for a speedy solution as desired by all the parties. We will continuously call on commercial creditors (including the international sovereign bondholders) to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make corresponding contributions.”
The letter further stated: “Since your (Sri Lanka) announcement of the Interim Policy to suspend the servicing of external public debt in mid-April, 2022….the Bank has responded positively to your demand to roll over the principal and the interest payable in 2022 and 2023.
With the Chinese EXIM bank supporting the IMF process, Sri Lanka will get the first tranche of EFF after the executive board of the Bretton Woods Institution meets in Washington later this month. After the approval, Sri Lanka will have to enter into a bilateral agreement with creditor nations within six months so that the haircut on the loan taken is equally distributed. While Sri Lanka owes USD 7.4 billion in debt to China, it owes one billion USD to India as bilateral debt and another USD four billion given outside the bilateral debt during the food, fuel and medicine crisis in Sri Lanka in the past two years.
The Chinese EXIM bank claims to have financed a large number of roads, ports, airports and power projects in Sri Lanka out of which nearly 40 have been completed.
It is understood that the Chinese EXIM bank support for Sri Lanka had been communicated to the IMF, who in turn had informed Colombo as there was tremendous pressure on the Ranil Wickremesinghe government with foreign exchange reserves down to USD 500 million.
Source: Hindustan Times