Image makeover: A year after turmoil, China assures Colombo of IMF bailout
Virendra Pandit
New Delhi: Nearly a year after Sri Lanka declared default amid widespread economic and political turmoil—which ended the China-friendly Rajapakse dynasty’s long stranglehold on the island nation—Beijing has mercifully assured Colombo to support Sri Lanka’s debt restructuring.
This comes days after China similarly assured its ‘all-weather friend’ Pakistan also as a face-saver after relentless international condemnation of its debt-trapping diplomacy in several poor countries.
The latest Chinese move may clear the biggest hurdle for debt-ridden Sri Lanka to secure a much-needed USD 2.9-billion bailout package from the International Monetary Fund (IMF), President Ranil Wickremesinghe said on Tuesday.
In January 2023, India strongly backed the island nation’s efforts to secure a loan from the global lender to recover from its worst-ever economic crisis since its Independence from the British in 1948. In fact, New Delhi became the biggest friend-in-need for Colombo as it extended a nearly USD 4 billion lifeline to its next-door-neighbor.
“Last night we received a new letter from the EXIM Bank of China. I and the governor of the Central Bank signed our letter of intent and sent it to the IMF last night itself,” Wickremesinghe, who is also the Minister of Finance, told Parliament on Tuesday.
“Our part of obligations are now complete and we hope the IMF will do their duty by the third or fourth week of this month. This will enable us to receive funding from the World Bank and the ADB, he added.
The IMF bailout process made slow progress because of the need to restructure Sri Lanka’s nearly USD 50 billion external debt. In contrast, Pakistan has a debt burden of USD 130 billion and is currently facing its worst-ever economic crisis. Islamabad is also hoping to get an IMF lifeline of nearly USD 1.1 billion as the ninth installment of the USD 6.8 billion cleared in 2019. Since its Independence in 1947, Pakistan has rushed to the IMF 23 times to bail it out of the financial quagmire.
The IMF had deemed inadequate a previous Chinese letter giving a two-year moratorium on debt repayment to Sri Lanka.
Wickremesinghe said the IMF program over the next four years would be different from all of the previous 16 programs with the Washington-based global lender.
He said the government has to take many hard economic decisions in order to stabilize the economy and work toward growth.
“The government measures to order tax hikes, raise utility tariffs, and end fuel subsidies had triggered political protests. I would like to apologize to the people for the hardships,” he said.
In September 2022, the IMF approved Colombo’s USD 2.9 billion bailout package over 4 years pending Sri Lanka’s ability to restructure its debt with creditors, both bilateral and sovereign bondholders.
By June 2022, Colombo owed nearly USD 40 billion to bilateral, multilateral, and commercial loans, according to the figures released by the Treasury.
Of them, the Chinese loans amounted to 20 percent of the total debt owed and 43 percent of the bilateral loans.
In April 2022, Sri Lanka declared its first-ever debt default as the unprecedented economic crisis triggered by forex shortages sparked countrywide mass protests.
Months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July 2022. He had started the IMF negotiations after refusing to tap the global lender for support.
Sri Lanka has introduced painful economic measures such as tax hikes and utility rate hikes. Trade unions and opposition groups have often organized protests against these measures.
