Sri Lanka closes in on $2.9bn IMF deal after China support

COLOMBO/WASHINGTON: Sri Lanka looks set to get a sign-off on a long-awaited $2.9 billion four-year bailout from the International Monetary Fund on March 20 after the crisis-hit country secured new financing support from China.

The IMF and the government confirmed on Tuesday that Sri Lanka had received assurances from all its major bilateral creditors - a key step to enable the fund to deploy financing and an important moment for the country engulfed in its worst economic crisis since independence from Britain in 1948.

President Ranil Wickremesinghe told parliament on Tuesday there were signs the economy was improving but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.

"Sri Lanka has completed all prior actions that were required by the IMF," Wickremesinghe said, adding the Export-Import Bank of China had sent a new letter on Monday, and that he and the central bank governor had sent a letter of intent to the IMF.

Receiving the financing assurances "paves the way for consideration by the IMF's Board on March 20 the approval of the Staff Level Agreement reached on September 1, 2022 for financing under an Extended Fund Facility", Krishna Srinivasan, director of the IMF's Asia and Pacific Department (APD) said in a separate statement.

Approval is expected since the board generally will not add items to its agenda unless its members are ready to act.

The country's international debt and currency roared higher on the news, with bonds adding some 3 cents in the dollar while the rupee jumped nearly 8 percent to a 10-month high before giving away some gains to trade 6 percent stronger. Sri Lankan stocks closed more than 2 percent higher.

It was not clear what new support China, the world's biggest sovereign creditor, had extended to Sri Lanka on Monday.

In January, the Export-Import Bank of China offered Sri Lanka a two-year moratorium on its debt and said it would support its efforts to secure the IMF loan, which a Sri Lankan source said at the time was not enough to meet IMF conditions.

China and India are Sri Lanka's biggest lenders. By end-2020, Sri Lanka owed the Export-Import Bank of China $2.83 billion or 3.5 percent of the island's external debt, according to IMF data.

In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed. Sri Lanka needs to repay about $6 billion on average each year until 2029 and will have to keep engaging with the IMF, Wickremesinghe said.

Countries in debt distress such as Zambia and Sri Lanka have faced unprecedented delays in securing IMF bailouts as China and Western economies have clashed over how to provide debt relief. Sri Lanka has been waiting for about 187 days to finalise a bailout after reaching a staff-level deal with the IMF.

This compares to a median of 55 days it took low- and middle-income countries over the past decade to go from preliminary deal to board sign-off, according to public data from more than 80 cases compiled by Reuters.

Chinese Foreign Minister Qin Gang said on Tuesday that his country would continue to participate in the settlement of international debt problems in a constructive manner.

Responding to a question on the sidelines of an annual parliament meeting in Beijing, Qin also said that China should be the last to be accused of causing debt traps in other countries and called on other parties to share the burden.