The Sri Lankan government is now on the verge of closing a deal to secure a $2.9 billion emergency financial package from the International Monetary Fund following new assurances from its two largest bilateral creditors, India and China.
Colombo got the desperately needed backing this week from both Asian powers, following carefully choreographed diplomacy that includes a four-day visit by China’s International Department Vice Minister Chen Zhou that ends on Wednesday, a day before Indian External Affairs Minister S. Jaishankar is expected to arrive in Colombo for talks.
This is a major breakthrough for embattled President Ranil Wickremesinghe, who has been struggling mightily over the past year to get Chinese, Indian, and Japanese creditors to work together to clear the way for the IMF package that he had hoped to conclude by the end of last year.
Although it doesn’t appear that any of these creditors are working collaboratively, as is the case in other developing countries like Zambia that are also undergoing debt restructuring, progress nonetheless is being made:
- CHINA: Chen, who also heads the CPC’s International Department, told Prime Minister Dinesh Gunawardena on Monday that “you will have some good news soon,” implying Beijing’s endorsement of Colombo’s debt restructuring plan. (NEWSWIRE)
- INDIA: SL officials also confirmed that “written financing assurances from India were sent to the IMF Monday evening,” clearly timed to coincide with Jaishankar’s visit that begins on Thursday. (THE HINDU)
- JAPAN: While Beijing and New Delhi have been slow to back Colombo’s debt plan, Tokyo was the first among Sri Lanka’s major bilateral creditors to do so last September. (REUTERS)
WHY IS THIS IMPORTANT?: Market analysts, governments and IFI officials are all closely watching how China responds to the debt crisis in Sri Lanka as a clue to what Beijing may do in other financially distressed countries in the Global South.
SUGGESTED READING:
- Bloomberg: Sri Lanka Nears IMF Bailout as India Said to Back Debt Plan by Anusha Ondaatjie and Asantha Sirimanne
- Island: Chinese top official reiterates commitment to helping Sri Lanka by Rathindra Kuruwita
