China offers Sri Lanka a two-year moratorium, ready to help secure $2.9bn loan from IMF

A Reuters report has said that the Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt. It has also agreed to support the country's efforts to secure a $2.9 billion loan from the International Monetary Fund, according to a letter reviewed by Reuters.

Sri Lanka, a country of 22 million people, is facing its worst economic crisis in seven decades. China and India are the biggest bilateral lenders to the country.

India had committed to supporting Sri Lanka with financing and debt relief in a letter to the IMF earlier this month. It further said that Sri Lanka also needs the backing of China in order to reach a final agreement with the global lender.

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Also Read |IMF welcomes India's support for Sri Lanka's debt restructuring

IMF had welcomed India's support to Sri Lanka as it will pave the way for a bailout amid the economic crisis the country is facing.

However, Sri Lankan sources told Reuters that China's letter, sent to the finance ministry on January 19, might not be enough for Sri Lanka to immediately gain the IMF's approval for the critical loan.

The latter states that China EximBank was going to 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 letter said.

"China EximBank wanted to expedite the negotiation process with your side regarding medium and long-term debt treatment in this period."

IMF data suggests that by the end of 2020, Sri Lanka owed China EximBank $2.83 billion or 3.5 per cent of the island's external debt. Sri Lanka owed Chinese lenders a total of $7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed.

"The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain," China's letter added.

An IMF spokeswoman confirmed to Reuters that the IMF’s management received India’s commitment. However, she didn't comment on the Chinese letter.

Sri Lanka's foreign and finance ministries and China's foreign ministry haven't commented on the matter.

A Sri Lankan source told Reuters that the country was expecting a clear assurance from Beijing, similar to what India provided to the IMF.

"China was expected to do more," the source said, "This is much less than what is required and expected of them."

(With inputs from agencies)

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