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India says Sri Lanka must treat China equally with other creditors

India’s Finance Minister Nirmala Sitharaman claims that she told the International Monetary Fund and World Bank that China must be treated just like any other creditor once talks begin to restructure Sri Lanka’s debt;

“All creditors must be treated equally and with transparency,” Sitharaman said in an interview in Washington Friday. “I’ve emphasized that point in general and in the context of Sri Lanka.”

China has already stepped in to provide urgently needed help for Sri Lanka to borrow US $1 billion from Beijing so that it can repay existing Chinese loans due in July, as well as a $1.5 billion credit line to purchase goods.

The island nation currently facing a dollar crisis South Asian nation, which is running out of dollars to pay for imports,is also seeking aid from neighbor India, the World Bank and the IMF.

Sitharaman said she has also requested the IMF consider rapid aid for middle income-classified Sri Lanka — typically given only to low-income countries — as the pandemic has destroyed the island’s tourism revenue.

With foreign-exchange earnings dwindling, Sri Lanka struggled to manage its external debt, which had grown in part due to loans from China to fund ambitious infrastructure projects.

Sri Lanka had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data.

Minister of Finance Ali Sabri PC says there are a number of issues that need to be addressed in obtaining financial assistance from the International Monetary Fund, including the duration, which could prove to be an obstacle.

The government has asked some creditors to restructure its debt and also approached China, Japan, and the Asian Development Bank amongst others for help, Ali Sabry said.

India has already agreed to double an existing USD 500 million credit line for fuel and defer about USD 1.5 billion in import payments that Sri Lanka needs to make to the Asian Clearing Union. It has also extended the tenure of a USD 400 million swap given in January, the Indian High Commission said on Friday.

Talks with the World Bank have also been very positive,” Sabry said, adding: “In the next four weeks to six months we expect about USD 500 million from them, which will be partly used to provide direct cash transfers to the poor”.

We have a three-pronged strategy. One is to get an IMF programme going, second to secure bridge financing and third to get Sri Lanka back on a growth trajectory in a year or so,” he said.adding that the government hopes to appoint financial advisers and an international law firm to start formal debt negotiations with creditors in the next 10 to 15 days.

Accordingly, the Minister said that he discussed the country’s situation with the World Bank as well, which agreed to provide 300 – 600 Million USD between two months to four week’s time. This amount will be directed for the benevolence of those who are in poverty, he added.

The Asian Development Bank has agreed to provide funds for Sri Lanka, especially to obtain medicines and other necessities for the people, the Finance Minister said.

Moreover, the Finance Minister of India, Nirmala Sitharaman also agreed to provide an amount worth 500 Million USD to purchase fuel, while an amount of 1.4Bn USD to be paid has been postponed till January via the Asian Clearing Union, Minister Sabry said.

“Apart from that, we have requested a 1 Billion USD loan to import essential items. They are also considering our request to lend another 1 Billion USD after the first one,” the Finance Minister said in reference to India.
Moreover, the Finance Minister said that he met with economic experts from the US, and their Finance Ministry as well.

The Finance Minister said that there are three strategies for funding; immediate emergency funding, bridge financing or to go in line with the growth trajectory.
Sri Lanka has to agree to IMF funding conditions, which is that debt needs to be sustainable, and Sri Lanka is taking many steps, such as staff-level talks, discussions with creditors and fiscal reforms to make it possible, the Finance Minister added.

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