China offers Sri Lanka debt moratorium, IMF help still in doubt

Sri Lanka has been offered a two year moratorium on its debt by the Export –Import Bank of China and claimed that China would extend its support to its  efforts in securing a $2.9 billion loan from the International Monetary Fund. 

However, according to a Sri Lankan source, China’s Jan. 19 letter, sent to the Ministry of Finance  may not be enough for Sri Lanka to immediately gain the IMF’s approval for the critical loan.  “China was expected to do more,” the source said, “This is much less than what is required and expected of them,” it added further.  

According to the letter, China EximBank said that it would provide “an extension on the debt service due in 2022 and 2023 as an immediate contingency measure” based on Sri Lanka’s request.

“You will not have to repay the principal and interest due of the bank’s loans during the above-mentioned period. The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain.” the letter said, adding that China EximBank wanted to expedite the negotiation process regarding the medium and long-term debt treatment of this period.

According to the IMF data, Sri Lanka owed China $2.83 billion which is 3.5 % of the island’s external debt by the end of 2020. In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of its public external debt, by end-2022, as calculations by the China Africa Research Initiative showed. 

Beijing has also been criticised by the Western countries for its slow progress in providing debt relief to the emerging economies in distress.