China offers two-year debt moratorium to cash-strapped Sri Lanka

Though India has offered unconditional and open-ended support to Sri Lanka based on the IMF-Paris Club debt sustainability analysis, China on Monday offered two loans to its close ally for the years 2022 and 2023 to make up for Colombo’s shortfall. Year loan moratorium offered. Term loan repayment pressure.

The IMF-Paris Club had proposed a 10-year moratorium on Sri Lankan debt and a 15-year period for debt restructuring, Mr. Zhang Wenkai, Vice President of the Export and Import Bank of China, informed the Ranil Wickremesinghe government in writing on Monday. The bank is going to provide an extension on debt service due in 2022 and 2023 as an immediate contingency based on the request from Colombo. This means that Sri Lanka will not have to repay the principal and interest due on the bank’s loan during 2022 and 2023. The letter further stated that the bank would like to expedite the process of negotiation with Colombo regarding the medium and long term debt treatment. With a view to finalizing the debt treatment in the coming months during 2023. This essentially means that China’s support for the IMF’s USD 2.9 billion Extended Fund Facility to Sri Lanka over four years in eight six-monthly installments is conditional on the outcome of the two-year moratorium.

In the letter, the vice president of China’s Exim Bank said: “The bank will support Sri Lanka in your application to the IMF EFF to help address liquidity stress. Meanwhile, adequate contribution from all creditors will be an important condition for a speedy resolution as desired by all the parties. We will continue to call on commercial creditors (including international sovereign bondholders) to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their best to contribute similarly.

The letter further states: “Since your (Sri Lanka) announcement of your (Sri Lanka) interim policy to suspend servicing of external public debt in mid-April, 2022… the bank has responded to your demand to roll over the principal and interest due. Has given positive feedback. In 2022 and 2023.

Sri Lanka will receive the first tranche of the EFF after the Bretton Woods Institution’s executive board meeting in Washington later this month, with the Chinese Exim Bank supporting the IMF process. Following the approval, Sri Lanka will have to enter into a bilateral agreement with the creditor countries within six months to equitably distribute the haircut on the loan taken. While Sri Lanka has a debt of USD 7.4 billion to China, USD 1 billion to India in the form of bilateral loans and USD 4 billion given outside bilateral loans during the food, fuel and medicine crisis in Sri Lanka in the last two years. outstanding.

The Chinese Exim Bank claims to have financed a large number of roads, ports, airports and power projects in Sri Lanka, of which about 40 have been completed.

It is understood that the Chinese Exim Bank support to Sri Lanka was informed to the IMF, which in turn informed Colombo as the Ranil Wickremesinghe government was under tremendous pressure with foreign exchange reserves of USD 500 million.

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