India formally notified that it would support Sri Lanka’s debt restructuring plan, clearing a major hurdle for the bankrupt nation to unlock a $ 2.9 billion bailout from the International Monetary Fund (IMF), Bloomberg reported citing an individual with knowledge of the matter.
India, one of Sri Lanka’s major bilateral creditors, gave its assurances late Monday (16), the person had told Bloomberg, asking not to be identified as the details are not public. An announcement could be made as early as Tuesday (17), another individual who spoke to Bloomberg said.
“With very positive developments taking place over the past 12 hours, Sri Lanka is confident of reaching IMF Board approval in the first quarter of 2023,” State Finance Minister Shehan Semasinghe told Bloomberg by phone on Tuesday, when queried as to whether India had assured support. He declined to elaborate.
A text message to the IMF representative in Washington D.C., USA, by Bloomberg was not immediately answered. India’s Finance Ministry spokesperson declined to comment to Bloomberg.
Sri Lanka still needs similar assurances from China, Japan and the so-called Paris Club members before the IMF Board can approve the loan programme. The end-2022 target for IMF Board approval has already been missed and Standard Chartered PLC predicted earlier this month that the multilateral lender may give the greenlight only between April-June, which means that talks with commercial creditors are likely to be pushed to the second half of 2023, it said.
Sri Lanka concluded debt restructuring talks with Japan, President Ranil Wickremesinghe announced last week, without sharing details. A delegation from China is visiting Sri Lanka till today (18) and Indian Foreign Minister Dr. S. Jaishankar is expected to visit tomorrow (19) ahead of Sri Lanka celebrating 75 years of Independence from British rule on 4 February.
Debt negotiations had yielded little progress since Sri Lanka defaulted in May 2022, with creditors bickering on the size of the losses that they are willing to accept and whether local debt should be included in the restructuring.
Sri Lanka fell deeper into recession last year as tighter monetary policy and sky-high inflation compounded its debt woes. While the Government has made some progress in restoring the economy’s health with basic goods like food and fuel becoming more easily available, Sri Lanka is still a long way from recovery, relying on repurposed funds from multilateral lenders and aid from friendly nations for relief.