China, IMF offer debt relief to Sri Lanka amid economic crisis
Sri Lanka will not have to repay the principal and interest during the period, the Export-Import Bank of China has said in a letter.
China has announced that it will not demand immediate repayment of debt from Sri Lanka for 2022 and 2023 and will expedite negotiations on "medium- and long-term debt treatment" to finalise specifics in the coming months, according to a letter seen by Reuters.
The letter was written by the Export-Import Bank of China (CHEXIM) to the Sri Lankan government on March 6, and Vice President Zhang Wencai confirmed that Sri Lanka would not have to repay the principal and interest of CHEXIM's loans during this period.
This decision was made to help relieve the short-term debt repayment pressure on Sri Lanka and is part of China's efforts to contribute to the debt sustainability of the country.
Sri Lanka is currently facing its worst economic crisis in over seven decades, and the shortage of dollars has disrupted the imports of essential goods. Last year, the situation worsened when protesters ousted a president.
As of the end of 2020, Sri Lanka owed CHEXIM $2.83 billion, which is 3.5% of its external debt, according to IMF data. Calculations by the China Africa Research Initiative show that Sri Lanka owes Chinese lenders $7.4 billion, which is almost a fifth of its public external debt, as of the end of 2022.
The announcement from CHEXIM comes after the International Monetary Fund (IMF) said on March 7 that Sri Lanka had secured financing assurances from China, India, and all its major bilateral creditors. This development sets the stage for final approval of the IMF's $2.9 billion, four-year bailout for the island nation on March 20.
The letter from CHEXIM added that China would call on commercial creditors to provide debt treatment in an equally comparable manner and encourage multilateral creditors to make contributions to help Sri Lanka better respond to the crisis and emerge from it.
The decision by China to offer debt relief to Sri Lanka is expected to have a significant impact on the country's efforts to recover from its financial crisis.
Overall, this development is expected to offer some respite to Sri Lanka as it tries to manage its debt and improve its economic situation.
(With agency inputs)
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First Published:8 Mar 2023, 01:59 PM IST
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