Exclusive-China promises Sri Lanka deal on debt treatment in coming months -letter

Devjyot and Uditha Jayasinghe

COLOMBO, (Reuters) -Sri Lanka was informed by China’s Export-Import Bank that it would work with Sri Lanka to resolve its debt situation. This is according to Reuters. The letter also reiterated a moratorium on debt payments due 2022 or 2023.

On Tuesday, the International Monetary Fund announced that Sri Lanka had received financing assurances from China and India. This set the scene for approval by the IMF of its $2.9 billion bailout package for Sri Lanka on March 20.

Sri Lanka faces its most severe economic crisis since more than 70 years. A shortage of dollars has hampered imports of essentials. However, the situation is improving this year compared to last year’s protests that ousted its president.

China’s expansion has been “firm support to Sri Lanka through a debt treatment”EXIM Bank addressed the letter on March 6 to the Sri Lankan government.

Zhang Wencai the bank’s Vice President stated that the loan principal and interest for two years would be paid back by the island nation in a letter. “so as to help relieve your short-term debt repayment pressure”.

“Meanwhile, we would like to expedite the negotiation process with your side regarding medium- and long-term debt treatment in this window period, with a view to finalising the specifics of a debt treatment in the coming months. We will make our best efforts to contribute to the debt sustainability of Sri Lanka.”

This letter is similar to the one EXIM Bank sent Sri Lankans in January. However, it does not mention the goal of completing debt-treatment details in the next months.

According to IMF data, Sri Lanka had EXIM 2.83 billion owed by the end of 2020, which is 3.5% of its total external debt.

China will call, the letter stated. “commercial creditors to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make contributions to help you better respond to the crisis and emerge from it”.

Spokespersons from China’s foreign ministries confirmed that the contents were true.

“It fully reflects our sincerity and efforts to support Sri Lanka in achieving debt sustainability, and we hope that relevant parties will respond positively to Sri Lanka’s loan application as soon as possible,” Mao Ning addressed a regularly scheduled news conference.

CHINA – LONG TALKS

The IMF agreement was possible only if China, Sri Lanka’s largest sovereign creditor, backed it.

Ranil Wickremesinghe, President of Sri Lanka told Parliament Tuesday that the government had received the China correspondence on Monday night. Soon afterward, the governor at the central bank sent an IMF letter of intent.

Wickremesinghe’s office sources said that Wickremesinghe had expected the letter from EXIM Bank on Thursday.

“Sri Lanka has been talking, discussing and negotiating with China EXIM Bank for weeks, mostly virtually, because that was what we were tasked with doing,” The source declined to identify himself as he wasn’t authorized to speak to media.

According to him, Sri Lanka was helped by the international community’s support, particularly Japan and the United States speaking with the Chinese government. The source said that Sri Lanka received support from India’s G20 summit last month.

Bandula Gunawardena was the spokesperson for Sri Lanka and transportation minister. He stated at a weekly news briefing, that the possibility of final IMF approval was imminent. “great achievement”.

“Sri Lanka has worked hard and spent months to fulfill requirements for the IMF programme, at certain times the president engaged at personal level to get support,” He stated.

“Without the IMF programme, Sri Lanka cannot turn around its economy.”

(Reporting by Uditha Jasinghe, Devjyot and Uditha Ghoshal; Additional reporting by Liz Lee at Beijing; Writing by Krishna N. Das. Editing by Kim Coghill. Muralikumar anantharaman.