Sri Lanka nears IMF bailout as India said to back debt plan

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By Editor_1
Sri Lanka defaulted on its $51bn debt last year - Ishara S Kodikara/AFP/Getty Images
By Anusha Ondaatjie and Asantha Sirimanne

COLOMBO – Sri Lanka’s debt negotiations with China and India “are successful,” according to President Ranil Wickremesinghe, bringing the bankrupt nation closer to clearing a major hurdle to unlock $2.9 billion from the International Monetary Fund (IMF).

The nation’s president, who doubles as finance minister, spoke before the parliament Tuesday (17), without providing details. Before that, a person with knowledge of the matter said that India formally notified it would support Sri Lanka’s debt restructuring plan late Monday (16).

Sri Lanka still needs similar assurances from China, Japan and so-called Paris Club members before the IMF board can approve the loan program. Sri Lanka concluded debt restructuring talks with Japan, Wickremesinghe said last week, without sharing details.

A delegation from China is scheduled to be in Sri Lanka through Jan. 18 and Indian Foreign Minister S. Jaishankar is expected to visit from Jan. 19 ahead of the island nation celebrating 75 years of Independence from British rule on Feb. 4.

On Monday, a delegation of China’s Communist Party led by Vice Minister Chen Zhou assured Prime Minister Dinesh Gunawardena that Beijing would stand by Sri Lanka during this crisis. “I’m confident that Sri Lanka will have good news very soon,” Chen said, according to a Jan. 16 statement.

Until recently, debt negotiations yielded little progress since Sri Lanka defaulted in May, with creditors bickering on the size of losses they are willing to accept and whether local debt should be included in the restructuring. Sri Lanka’s end-2022 target for IMF board approval has already been missed and Standard Chartered Plc predicted delays in the process. The latest remarks from officials offer some optimism.

“With very positive developments taking place over the past 12 hours, Sri Lanka is confident of reaching IMF board approval in the first quarter of 2023,” Sri Lanka’s junior Finance Minister Shehan Semasinghe said by phone Tuesday, when asked if India had assured support. He declined to elaborate.

The CSE All Share index advanced 1.3% to 8,373.07, the most in three weeks. The 7.55% 2030 dollar bond was indicated 0.3 cents lower at 33.3 cents on the dollar.

A text message to an IMF representative in Washington wasn’t immediately answered. India’s Finance Ministry spokesperson declined to comment.

An IMF bailout will give troubled Sri Lanka much-needed funds to continue mending an economy that has fallen deeper into recession amid sky-high inflation and elevated borrowing costs. While the government has made some progress, with basic goods like food and fuel becoming more available in the past months, Sri Lanka is still is a long way from recovery. It has relied on repurposed funds from multilateral lenders and aid from friendly nations for relief.

-bloomberg.com

Editor_1
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