Sri Lanka Closes in on $2.9-Billion IMF Loan and China Support

Sri Lanka’s president said on Tuesday the country expects final approval of a $2.9-billion loan from the IMF at the end of this month.

Alongside additional support from China this will mean all funding requirements have been met, President Ranil Wickremesinghe said in remarks to parliament.

The country of 22 million people is struggling with its worst economic crisis since independence from Britain in 1948.

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President Ranil Wickremesinghe told parliament there were signs the economy was improving but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.

“Sri Lanka has completed all prior actions that were required by the IMF,” Wickremesinghe said.

Leaning on China

He said the Export-Import Bank of China had sent “a new letter” on Monday, and he and the central bank governor had sent a letter of intent to the IMF.

“As a result of this step and financing assurances from India and the Paris Club, we expect approval for the programme either in the third or fourth week of March,” he said.

The country’s international debt and currency roared higher on the news, with bonds adding nearly 3 cents in the dollar while the rupee jumped nearly 8% to a 10-month high.

It was not clear what new support China, the world’s biggest sovereign creditor, extended to Sri Lanka on Monday. In January, the Export-Import Bank of China offered Sri Lanka a two-year moratorium on its debt and said it would support its efforts to secure the IMF loan, which a Sri Lankan source said at the time was not enough to meet IMF conditions.

China and India are Sri Lanka’s biggest lenders. By end-2020, Sri Lanka owed the Export-Import Bank of China $2.83 billion or 3.5% of the island’s external debt, according to IMF data.

In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed.

‘A Lot of Positivity’

Sri Lanka’s rupee hit a mid-rate of 325 on Tuesday, appreciating 12%, analysts said, against the central bank-set spot rate of 337.67. The appreciation was driven by better dollar inflows from tourism and remittances, positive sentiment over imminent approval of an IMF deal and a downturn in imports, analysts said.

“There is a lot of positivity around a possible IMF announcement and more dollar loans are expected with an approval of the bailout,” Udeeshan Jonas, chief strategist at equity research firm CAL Research, said.

“Also, speculators who were hoarding dollars have started to panic and convert with the rupee starting to appreciate.”

Sri Lanka needs to repay about $6 billion on average each year until 2029 and will have to keep engaging with the IMF, Wickremesinghe said.

Chinese Foreign Minister Qin Gang said on Tuesday that his country would continue to participate in the settlement of international debt problems in a constructive manner.

Responding to a question on the sidelines of an annual parliament meeting in Beijing, Qin also said that China should be the last to be accused of causing debt traps in other countries and called on other parties to share the burden.