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President Ranil Wickremesinghe
China President Xi Jinping
Treasury Secretary Mahinda Siriwardena
The Government on Wednesday formally announced it has reached an agreement on the key principles and indicative terms of a debt treatment with the Export-Import Bank of China.
The Finance Ministry said the agreement in principle covers approximately US$ 4.2bn of outstanding debt.
“It constitutes a key step towards restoring Sri Lanka’s long-term debt sustainability and will pave the way to a prompt economic recovery,” the Ministry said in a statement.
It said the indicative terms agreed will provide the necessary fiscal space for Sri Lanka to implement its ambitious reform agenda.
The Finance Ministry said the “Sri Lankan Government commends the engagement and continuous support of China Exim bank in reaching this agreement in principle, which demonstrates a mutual commitment in line with the goal/objective of restoring public debt sustainability consistent with the IMF-supported program.”
It expressed the hope that this landmark achievement will provide an anchor to their ongoing engagement with the Official Creditor Committee and commercial creditors, including the bondholders.
“It should also facilitate approval by the IMF Executive Board of the first review of the IMF-supported program in the coming weeks, allowing for the next tranche of IMF financing of about US$334 million to be disbursed,” the Finance Ministry said.
Treasury Secretary K.M. Mahinda Siriwardana described the deal with China as a “big step for Sri Lanka” as the country reached this landmark agreement in principle on debt treatment terms with the largest single creditor.
“We thank China Exim bank for the support in resolving our country’s debt situation. This agreement constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery,” Siriwardena added.
The Finance Ministry said in the next few weeks, the Sri Lankan authorities and China Exim bank will actively work on formalising and implementing the agreed parameters of the debt treatment.
On Wednesday, the Daily FT reported that China revealing that its Export-Import Bank tentatively agreeing with Sri Lanka on dent treatment (https://www.ft.lk/front-page/China-says-Export-Import-Bank-tentatively-agrees-with-Sri-Lanka-on-debt-treatment/44-753909)
“We will continue to support Chinese financial institutions in actively consulting with Sri Lanka. We are ready to work with relevant countries and international financial institutions to jointly play a positive role in helping Sri Lanka navigate the situation, ease its debt burden and achieve sustainable development. We call on multilateral institutions and commercial creditors to take part in Sri Lanka’s debt restructuring based on fair burden-sharing,” China’s Foreign Ministry Spokesperson Wang Wenbin told journalists in Beijing during his regular briefing on Tuesday.
However, IMF Senior Mission Chief for Sri Lanka Peter Breue told Bloomberg on Wednesday while they knew discussions were taking place with creditors, “we have not yet been informed about any specific agreements.” The multilateral lender would need to “assess the entire package of agreements in its totality to assess consistency with IMF debt targets,” he added.
The breakthrough also comes ahead of President Ranil Wickremesinghe’s first official visit to China next week since assuming office.
Sri Lanka’s announcement also comes ahead of the likely conclusion of further talks between authorities and the IMF on the sidelines of the IMF and World Bank annual meeting in Marrakech, Morocco this week to reach an agreement on the first review of the IMF›s $ 3 billion Extended Fund Facility program. The Lankan delegation is led by State Minister of Finance Shehan Semasinghe and includes Treasury Secretary Siriwardena and Central Bank Governor Dr. Nandalal Weerasinghe.
