The Government expects the IMF funds to be disbursed to Sri Lanka within “four to six weeks” after the agreement with bilateral creditors has been finalised.
The Government had initially hoped to agree to a new payment plan with China and India by the end of last year. Beijing’s lending to Sri Lanka stands at around $7bn while India is owed around $1bn. The US Ambassador to Sri Lanka, Julie Chung, said the greater onus to move was on China, as the biggest bilateral lender.
“We hope that they do not delay because Sri Lanka does not have time to delay. They need these assurances immediately,” Ambassador Chung told BBC Newsnight.
“For the sake of the Sri Lankan people, we certainly hope China is not a spoiler as they proceed to attain this IMF agreement,” she said.
But if India and China do ultimately agree to write down their loans to Sri Lanka another potential problem looms in the form of private creditors, who account for 40% of the country’s external debt stock.
Independent analysts say China is concerned about what a substantial Sri Lankan debt write down could mean for its extensive lending to other developing countries through its Belt and Road program.
In the years after Argentina plunged into economic crisis and defaulted in 2001, some American hedge funds, rather than accepting a restructuring of the sovereign bonds they had bought on the open market, demanded full repayment and took the country’s government to court in the US to achieve it.
Recently, a large group of international economists called for Sri Lanka’s bonds to be “cancelled”, stating: “All of Sri Lanka’s creditors must ensure debt cancellation sufficient to provide a way out of the current crisis.”