Opts out of seeking  IMF bailout

Having ruled out seeking an International Monetary Fund (IMF) bail out, Sri Lanka is banking on securing another loan from China to address its economic crisis that has led to food and fuel shortages.

Sri Lanka, whose tourism-dependent economy has been battered by the pandemic with supermarkets rationing goods and rolling blackouts imposed by power utilities unable to fund oil imports, is seeking Chinese debt reschedule for its crashing economy. Beijing is already Sri Lanka’s biggest bilateral lender, accounting for at least 10 per cent of Sri Lanka’s external debt.

The move to seek Chinese help in dealing with its economic crisis comes as international rating agencies have warned Sri Lanka of a looming sovereign default on its US$35 billion foreign debt, as the treasury battles a crunch on foreign exchange reserves and a gaping budget deficit.

The Asian country’s Central Bank Governor Ajith Nivard Cabraal is rejecting mounting calls from local and international economists to seek an IMF bailout and debt restructure.

Speaking at a news conference in Colombo, Cabraal declared that, “the IMF is not a magic wand… . At this point, the other alternatives are better than going to the IMF”.

He disclosed that talks with China over a new loan were at an “advanced stage”, noting that a fresh agreement would service existing debt to Beijing.

According to the Central Bank Governor, “they (Beijing) would assist us in making the repayments… the new loan coming from China is in order to cushion our debt repayments to China itself”.

Cabraal’s remarks come days after a visit from Chinese Foreign Minister Wang Yi, who discussed a debt payment restructure with President Gotabaya Rajapaksa.

Heaving Sri Lankan borrowing from China

Sri Lanka has borrowed heavily from China for infrastructure in the past, some of which ended up as white elephants. Unable to repay a US$1.4-billion loan for a port construction in the south, Sri Lanka was forced to lease out the facility to a Chinese company for 99 years in 2017.

The United States and India have warned that the Hambantota port, located along vital east-west international shipping routes, could give China a military toehold in the Indian Ocean. While not giving an indication of the size of the loan sought from China, Cabraal explained that talks were also under way with India for a $1-billion credit line to fund a broad range of imports.

He explained that Colombo will repay a US$500-million sovereign bond that matures next Tuesday despite local business leaders publicly asking him to withhold the repayment and seek IMF help.