Dove: Bankrupt Sri Lanka cannot tap a $1.5 billion line of credit from China as the Chinese fear the International Monetary Fund will force repayment delays.
“There is a condition regarding the months of import cover that we need to be able to tap into this money,” Indrajit Coomaraswamy, who advises the Sri Lankan government, told an event hosted by the central bank. Thursday. It’s hard for the Chinese to waive the condition “because it’s a three-year swap, it could qualify as a loan, and there may be pressure from the IMF and others to including it in the stock of debt that we are rescheduling and so clearly that would be a disadvantage for the Chinese,” he said.
India — Sri Lanka’s creditor and neighbor and China’s rival — wants the IMF to treat China on an equal footing with other creditors. Meanwhile, India used a recent Quad summit to ask Japan to help Sri Lanka as well. The Quad is an informal group comprising India, Japan, the United States and Australia, whose unstated goal is to contain China’s power.
“There are indications that the Japanese government may now be more willing to provide bridge funding,” Coomaraswamy said. Prime Minister Ranil Wickremesinghe previously told Bloomberg that the percentage of loans from Japan and China were the same, but Chinese interest rates were higher.
Bridge loans are essential for the island nation to pay for food and fuel, with severe shortages fueling inflation at 40%. Sri Lanka has defaulted on foreign payments and is seeking both quick aid and an extended IMF financing facility, but must first show it has taken steps to reduce its existing debt burden.
“Political instability and the demand for progress on debt renegotiations remain obstacles to a speedy deal, despite the declared intention to conclude a deal by the end of the month,” the EMFI strategists wrote. Group Ltd. Marianna Fajardo and Guillermo Guerrero in a note.
Coomaraswamy said Sri Lanka expects a staff-level agreement with the IMF as early as this month, which will not mean money will be disbursed but could increase confidence in the country’s financial assets. .
The first task, however, is to agree on a baseline for the debt sustainability analysis and those negotiations are ongoing, Coomaraswamy said. Once the baseline has been established, Sri Lanka will need to determine the type of offer it will make to creditors.
“So it’s going to take a few months, and given that our reserves are almost zero, we have to find ways to mobilize,” Coomaraswamy said. — Bloomberg
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