‘Last hurdle removed’: Sri Lankan president on China debt restructuring

Sri Lanka’s president said on Tuesday that China has agreed to restructure its debts to the bankrupt island nation, removing the final hurdle to a long-awaited International Monetary Fund bailout.

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An unprecedented economic crisis has seen Sri Lanka’s 22 million people facing severe shortages of food, fuel and medicine, as well as extended blackouts and runaway inflation.

President Ranil Wickremesinghe’s government is working to repair Sri Lanka’s ruined finances and an IMF rescue package is desperately needed.

But it was held up by debt talks with China, its biggest bilateral creditor.

Wickremesinghe told parliament Beijing has now agreed to a restructuring and he expects the first tranche of the promised $2.9 billion to be released by the Washington-based lender within the month.

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In a special address to lawmakers, he said, “We have done our job, I hope the IMF will do its job.”

Wickremesinghe said China’s state-owned Exim Bank had sent a letter to the IMF on Monday night indicating its willingness to go ahead with the restructuring.

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

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

Of this, just over $14 billion is bilateral debt to foreign governments, of which China holds 52 per cent.

Wickremesinghe’s government in September reached a staff-level agreement with the IMF for a $2.9 billion rescue package, but its release was put on hold pending “financial assurances” from creditors.

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

A “significant change in China’s earlier position” would be necessary for the bailout to go ahead, Murtaza Jafarjee, chief financial analyst at the Colombo-based Advokata Institute think tank, told AFP.

Instead of cutting down on its loans, Beijing proposed a debt moratorium of up to two years, which was deemed insufficient to meet the IMF’s requirements.

“It is for the IMF board to decide whether Exim Bank’s letter provides sufficient financial assurance,” Jafarji told AFP.

– ‘Rebuild this country’ –

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

Wickremesinghe has slashed sharp tax hikes and energy subsidies to repair the country’s finances and meet the terms of the IMF deal.

The president warned last month that Sri Lanka would remain bankrupt for at least three more years and acknowledged his austerity measures had caused discontent.

He then said, “Introducing new tax policies is a politically unpopular decision. Remember, I am not here to be popular. I want to rebuild this country from the crisis it has fallen into.”

He told parliament on Tuesday that inflation had come down to about 50 percent from a high of about 70 percent in September.

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

Government doctors and bank workers were among those who went on strike last week, defying the government’s ban on trade union action by “essential services”.

Wickremesinghe faced his first test of public confidence on 25 April, when Sri Lanka delayed local elections announced by the Electoral Commission on Tuesday.

The Supreme Court last week ordered Wickremesinghe to release funds to conduct the vote after the president said the government could not afford it.

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