China Backs Sri Lanka Debt Restructuring, Paving Way for $2.9 Billion IMF Lifeline

Picture Source: Internet

China has assured that it will upkeep Sri Lanka’s debt rearranging, clearing the largest hurdle for the South Asian nation to protect a $2.9 billion bailout from the International Monetary Fund (IMF).

According to a media report, Sri Lanka’s leading bilateral creditor provided written support for debt streamlining via the Export-Import Bank of China on March 6. The letter meets the necessities of the IMF.

China’s backing concludes the backing Sri Lanka needs from creditor countries to permit the IMF board to approve the loan agreed upon by the Fund staff in September. Sri Lanka had projected the board’s signal by the end of 2022, although it has since attuned potential within this quarter.

The bailout will cover the way for more backing and set the insolvent nation’s debt restructuring on a firmer path since last year’s avoidance. While paralysing supply lacks in the island nation have eased, foreign currency funds have been shuffling up, and inflation is somewhat cooling. The government wants the IMF loan to get more funding and crack the corner.

IMF financial sustenance can only be delivered for republics with sustainable debt. For countries with unmaintainable debt, IMF financing may continue before a debt reformation is completed if official bilateral creditors provide the IMF with satisfactory assurances that they will take steps to help reinstate debt sustainability.

Over the past few months, Sri Lanka has raised taxes, cut energy subsidies and loosened controls on its currency to secure an IMF loan. Authorities recently raised borrowing costs further to ensure inflation, which has already fallen by nearly 70%, does not flare up again while loosening controls on the currency to boost market confidence.

China accounts for 52% of the nation’s bilateral debt. India and the Paris Club of creditors have formerly supported the debt restructuring that’s pulled since Sri Lanka dodged in May last year.

The struggling economy seeks a post-bailout turnaround, with inflation expected to fall to single digits by the end of 2023 as tourism and remittances pick up.

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