Sri Lankan President says China agrees to restructuring of loans

COLOMBO: Sri Lanka’s president said Tuesday China has agreed to restructure its loans to the bankrupt island nation, removing the final obstacle to a long-awaited International Monetary Fund bailout.

An unprecedented economic crisis has left Sri Lanka’s 22 million people suffering acute shortages of food, fuel and medicines, along with widespread power outages and runaway inflation.

President Ranil Wickremesinghe’s government is working to mend Sri Lanka’s ailing finances and secure a much-needed IMF bailout.

But it has been held up by debt negotiations with China, its largest bilateral creditor.

Wickremesinghe told parliament Beijing has now approved a restructuring and he expects the first tranche of the Washington-based lender’s $2.9 billion in funds to be released within the month.

“We’ve done our part, I hope the IMF will play its part,” he said in a special address to lawmakers.

Wickremesinghe said the state-owned Exim Bank of China sent a letter to the IMF on Monday night signaling its willingness to restructure.

There was no immediate confirmation of the announcement from the bank or the IMF.

Sri Lanka defaulted on its $46 billion in foreign debt last April.

Just over $14 billion of that is bilateral debt to foreign governments, of which China holds 52 percent.

The Wickremesinghe government struck a staff agreement with the IMF in September for a $2.9 billion bailout, but its release was delayed because of “financial assurances” from creditors.

Japan and India, its other largest creditors, along with a host of other creditor nations known as the “Paris Club,” had given assurances earlier this year, leaving only China to give its consent.

Financial analyst Murtaza Jafferjee, who heads the Colombo-based think tank Advocata Institute, told AFP that “a significant change in China’s previous position” would have been necessary for the bailout to proceed.

Beijing had previously proposed a debt moratorium for up to two years instead of haircutting its loans, an offer deemed insufficient to meet IMF requirements.

“It is up to the IMF Board to decide whether Exim Bank’s letter provides sufficient financial assurances that they expect from all creditors,” Jafferjee told AFP.

“Rebuild This Nation”

Sri Lanka’s economic crisis culminated last July when tens of thousands of protesters stormed then-President Gotabaya Rajapaksa’s official residence, forcing him to flee abroad and resign.

Wickremesinghe has imposed drastic tax hikes and ended energy subsidies in a bid to clean up the nation’s finances and meet the terms of the IMF deal.

He has also announced plans to sell loss-making state-owned companies, including Sri Lanka’s national airline, to meet the terms of the IMF bailout package.

The President warned last month that Sri Lanka would remain bankrupt for at least three more years and acknowledged that his austerity measures had sparked dissatisfaction.

“Introducing a new tax policy is a politically unpopular decision. Remember, I’m not here to be popular. I want to rebuild this nation from the crisis it has fallen into,” he said at the time.

On Tuesday, he told parliament inflation had fallen to about 50 percent from a peak of nearly 70 percent in September.

Police have used tear gas and water cannons to break up several protests against the government’s economic reforms in recent weeks.

Government doctors and bank employees were among those who went on strike last week in defiance of a state ban on union activity in “essential services”. -AFP