China has sent assurances backing IMF package, Ranil tells Parliament

Subject : International Relations

Section: International Organization

Concept :

China has given assurances that it will support Sri Lanka’s debt restructuring, clearing the biggest hurdle for the debt-ridden country to secure a much-needed USD 2.9-billion bailout package from the IMF, President Ranil Wickremesinghe said on Tuesday.
In January, India strongly backed the island nation’s efforts to secure a loan from the global lender to recover from its worst-ever economic crisis.

Background

Sri Lanka is facing its worst economic crisis since independence from Britain in 1948, and policymakers have been grappling with multiple challenges over the past year including a shortage of dollars, runaway inflation and a steep recession.
China, Japan, and India are Sri Lanka’s three largest bilateral lenders.
Sri Lanka owes India around $1 billion that will come under the debt restructuring plan.
New Delhi also separately provided Sri Lanka with about $4 billion in rapid assistance between January and July last year, including credit lines, a currency swap arrangement and deferred import payments.

Need of The Assurances:

New Delhi’s backing comes at a critical time for Sri Lanka as it has to put its massively indebted public finances in order to unlock a $2.9 billion IMF loan that was agreed in September.
Sri Lanka has to secure prior financing assurances from creditors, put its heavy debt burden on a sustainable path and increase public revenue before the global lender will disburse the funds.
The IMF has stressed the importance of joint talks involving three of Sri Lanka’s main bilateral creditors – China, Japan and India.