Sri Lanka one step closer to securing IMF funding with Paris Club’s nod

• President’s office disseminates Paris Club statement providing financing assurances 
• India has already given clear and specific financing assurances on their debt to SL
• Paris Club creditors urge China to provide financing assurances to help SL unlock IMF funding
• Non-Paris Club nations Hungary and Saudi Arabia also extend support

After India, Paris Club creditors have provided financing assurances, placing Sri Lanka a step closer to secure approval from the Executive Board of the International Monetary Fund (IMF) for the envisaged US$ 2.9 billion bailout package under the Fund’s Extended Fund Facility (EFF), President Ranil Wickremesinghe’s office said yesterday.

On September 1, 2022, Sri Lanka entered a staff level agreement with the IMF for the four-year loan facility, which was contingent on the IMF Executive Board approval. To gain such approval, Sri Lanka needs to secure financing assurances from its bilateral creditors. 
India a couple of weeks ago gave specific and clear financing assurances to the IMF on their debt to Sri Lanka, extending support to a debt treatment process to help Sri Lanka regain macroeconomic stability and debt sustainability. 

According to a Paris Club statement disseminated by the President Wickremesinghe’s office, Paris Club members held a meeting on January 25, 2023 “in the presence of representatives from Hungary, Saudi Arabia, the Kuwait Fund for Arab Economic Development and India, as well as from the International Monetary Fund and the World Bank, to provide financing assurances to support the approval by the IMF Executive Board of the envisaged IMF programme for Sri Lanka, which would allow to restore the country’s macroeconomic stability.”

“To support the implementation of the envisaged IMF supported programme and the Sri Lankan authorities’ efforts with other official bilateral creditors, Paris Club members, jointly with Hungary, expressed their full commitment to negotiate with Sri Lanka terms of  restructuring their eligible claims, in accordance with the comparability of treatment principle among all bilateral creditors, and with the goal of restoring debt sustainability with due regard to targets and overall macroeconomic goals under the Extended Fund Facility,” it added.

“The Paris Club members as well as Hungary and Saudi Arabia urged other official bilateral creditors, including China, to do the same in line with IMF programme parameters as soon as possible,” it further said. 
Sri Lanka’s bilateral official creditors of Paris Club members are Japan, France, Korea, Germany, the United States of American, Spain, the Netherlands, Russia, Sweden, Austria, Canada, the United Kingdom, Denmark, Belgium, and Australia. 
Non-Paris Club members include China, India, Saudi Arabia, Kuwait, Hungary, Iran, Pakistan, and Bangladesh.

While specific financing assurances from China could immediately unlock IMF funding for Sri Lanka, China’s Export and Import Bank had conveyed to Sri Lanka in writing offering a two-year moratorium on its debt and said it would support the country’s efforts to secure the US$ 2.9 billion loan from the IMF.

China is Sri Lanka’s largest bilateral lender. Official data from the Finance Ministry shows China accounting for only about 10 percent of the country’s US$ 35.1 billion in external debt at the end of April 2021. But, some observers believe the figure may cover only government-to-government debt.
While the IMF has not yet provided any guidance on where it stands regarding China’s assurances to Sri Lanka, a top U.S. official visiting Colombo said what Beijing had done was not enough.

“What China has offered so far is not enough. We need to see credible and specific assurances that they will meet the IMF standard of debt relief,” U.S. Under Secretary of State for Political Affairs Victoria Nuland told reporters in Colombo a week ago.