NEW DELHI - India formally notified that it would support Sri Lanka’s debt restructuring plan, according to a person with knowledge of the matter, clearing a major hurdle for the bankrupt nation to unlock a US$2.9 billion (S$3.8 billion) bailout from the International Monetary Fund.
India, one of Sri Lanka’s major bilateral creditors, gave its assurances late Monday, the person said, asking not to be identified as the details are not public. An announcement could be made as early as Tuesday, another person said.
“With very positive developments taking place over the past 12 hours, Sri Lanka is confident of reaching IMF board approval in the first quarter of 2023,” Sri Lanka’s junior Finance Minister Shehan Semasinghe said by phone on Tuesday, when asked if India had assured support. He declined to elaborate.
A text message to the IMF representative in Washington was not immediately answered. India’s Finance Ministry spokesman declined to comment.
Sri Lanka still needs similar assurances from China, Japan and so-called Paris Club members before the IMF board can approve the loan programme.
The end-2022 target for IMF board approval has already been missed and Standard Chartered predicted earlier in January that the multilateral lender may give the green light only between April and June, which means talks with commercial creditors are likely to be pushed to the second half of 2023, it said.
Sri Lanka concluded debt restructuring talks with Japan, President Ranil Wickremesinghe announced last week, without sharing details. A delegation from China is visiting Sri Lanka through Jan 18 and Indian Foreign Minister S. Jaishankar is expected to visit from Jan 19 ahead of Sri Lanka celebrating 75 years of Independence from British rule on Feb 4.
Debt negotiations had yielded little progress since Sri Lanka defaulted in May, with creditors bickering on the size of losses they are willing to accept and whether local debt should be included in the restructuring.
Sri Lanka fell deeper into recession in 2022 as tighter monetary policy and sky-high inflation compounded its debt woes.
While the government has made some progress in restoring the economy’s health with basic goods such as food and fuel becoming more easily available, Sri Lanka is still a long way from recovery, relying on repurposed funds from multilateral lenders and aid from friendly nations for relief. BLOOMBERG
