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China reiterates support for Sri Lanka debt optimisation

Sri Lanka on Thursday said China has expressed its commitment to support the country’s efforts to restructure its external credit to comply with the reforms suggested by IMF for releasing the second tranche of the $2.9 billion bailout package.

Accoedingly the IMF staff and the Sri Lankan authorities have reached a staff-level agreement on economic policies to conclude the first review of the 48-month EFF-supported program IMF announced

Sri Lanka will have access to SDR 254 million (about US$330 million) in financing once the review is approved by IMF Management and IMF Executive Board.

Macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilization.

Sustaining the reform momentum and addressing governance weaknesses and corruption vulnerabilities are critical to put the economy on a path towards lasting recovery and stable and inclusive growth.

Completion of the review by the IMF’s Executive Board requires: (i) the implementation by the authorities of all prior actions; and (ii) the completion of financing assurances reviews.

Sri Lanka has confirmed that it has reached a deal with China, to restructure $4.2bn (£3.4bn) of debt. It has been trying to reach similar deals with a number of creditors to unlock the next tranche of a bailout. Sri Lanka defaulted on its foreign debt in May 2022 amid its worst financial crisis in decades

Chinese Finance Minister Liu Kun has reaffirmed China’s commitment to extend comprehensive support for the implementation of a medium-term and long-term programme that is mutually beneficial to both parties and aimed at optimising Sri Lanka’s debt, a statement from President’s Media Division said.

The Chinese Finance Minister had conveyed this commitment during bilateral discussions held yesterday in Beijing with President Ranil Wickremesinghe, who is currently on a four-day official visit to China.

Sri Lanka commenced negotiations with its creditors, including China, Japan, and India in September of last year, in parallel to its efforts to secure the US$ 2.9 billion IMF bailout.

According to the Finance Ministry, Sri Lanka’s total foreign debt as at end-March, 2023 was Rs.36.4 billion.

As at March-end 2023, Sri Lanka owed US$ 4.7 billion to China, US$ 1.74 billion to India, and US$ 2.68 billion to Japan, which is a member of the Paris Club.

Meanwhile, during his discussion with President Wickremesinghe, Minister Liu has assured China’s unwavering commitment to providing robust support for the enhancement of the necessary infrastructure crucial for Sri Lanka’s development.

“President Wickremesinghe expressed his profound appreciation for China’s consistent support as Sri Lanka endeavours to overcome economic challenges,” the PMD statement said.

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