COLOMBO - Sri Lanka’s President said on Tuesday that China has agreed to restructure its loans to the bankrupt island nation, clearing the final obstacle to a long-awaited International Monetary Fund (IMF) bailout.

An unprecedented economic crisis has seen Sri Lanka’s 22 million people suffer acute food, fuel and medicine shortages, along with extended blackouts and runaway inflation.

President Ranil Wickremesinghe’s government has been working to repair Sri Lanka’s ruined finances and secure the sorely needed IMF rescue package.

But that was held up by debt negotiations with China, its largest bilateral creditor.

Mr Wickremesinghe told Parliament that Beijing had now agreed to a restructure.

He said he expected the first tranche from the Washington-based lender’s promised US$2.9 billion (S$3.9 billion) in funds to be released within the month.

“We have done our part, I hope the IMF will do theirs,” he said in a special address to lawmakers.

Mr Wickremesinghe said the state-owned Exim Bank of China had sent a letter to the IMF on Monday night, signalling its willingness to go ahead with a restructure.

There was no immediate confirmation of the announcement from the bank or the IMF.

Sri Lanka defaulted on its US$46 billion foreign debt in April 2022.

Just over US$14 billion of that is bilateral debt owed to foreign governments, of which China holds 52 per cent.

Mr Wickremesinghe’s government entered into a staff-level agreement with the IMF for a US$2.9 billion rescue package last September. But its release was held up pending “financial assurances” from creditors.

Japan and India, its other biggest creditors, along with a host of others known as the “Paris Club” creditor nations, had given assurances earlier in 2023, leaving only China to give its assent.

‘Rebuild this nation’

Sri Lanka’s economic crisis culminated last July when tens of thousands of protesters stormed then President Gotabaya Rajapaksa’s official residence, forcing him to flee abroad and resign.

Mr Wickremesinghe has imposed sharp tax hikes and ended energy subsidies to repair the nation’s finances and meet the terms of the IMF deal.

He has also announced plans to sell off loss-making state enterprises, including Sri Lanka’s national airline, to satisfy the terms of the IMF bailout.

Mr Wickremesinghe warned in February that Sri Lanka would remain bankrupt for at least three more years, and acknowledged that his austerity measures had caused discontent.

“Introducing new tax policies is a politically unpopular decision. Remember, I’m not here to be popular. I want to rebuild this nation from the crisis it has fallen into,” he said then.

On Tuesday, he told Parliament that inflation had eased to about 50 per cent, from a high of nearly 70 per cent in September. AFP