India has offered more monetary help to Sri Lanka in form of relief packages and debts, after it helped with crude oil, food and fertilizers amid IMF’s refusal to help unconditionally.
The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it will support the country’s efforts to secure a $2.9 billion loan from the International Monetary Fund, according to a letter reviewed by Reuters. However China has not offered debt exemption to the island country.
India wrote to the IMF earlier this month that it would pledge to support Sri Lanka with financing and debt relief, but the island nation also needs China’s support to reach a final deal with the global lender.
However, China’s Jan. 19 letter to the finance ministry may not be enough for Sri Lanka to immediately get IMF approval for the critical loan, a Sri Lankan source familiar with the matter said.
Regional rivals China and India are the biggest bilateral creditors to Sri Lanka, a country of 22 million people facing its worst economic crisis in seven decades.
According to the letter, the Export-Import Bank of China said it would provide “an extension of debt service due in 2022 and 2023 as an immediate emergency measure” upon Sri Lanka’s request.
At the end of 2020, China’s EXIM Bank lent $2.83 billion to Sri Lanka, which is 3.5% of the island’s debt, according to an IMF report published in March last year.
“…for the stated period, you will not have to repay the principal and interest from the bank’s loans,” the letter reads.
“In the meantime, we would like to speed up the negotiation process with your side on a medium and long-term debt solution during this period.”
According to calculations by the China Africa Research Initiative, Sri Lanka owed Chinese creditors $7.4 billion by the end of last year, or almost a fifth of its public external debt.
“The Bank will support Sri Lanka in your request for the IMF Extended Fund Facility (EFF) to help ease liquidity pressures,” the letter said.