Sri Lanka, which is under an ongoing economic crisis, is headed for another major turbulence as the country will not be able to secure the much-needed IMF loan in December as its ally and debtor China is yet to initiate a dialogue on debt restructuring with Colombo.
A report in Hindustan Times quoting financial analysts based in Washington said that Sri Lanka will miss the IMF deadline and will have to wait till March next year to secure a loan of $2.9 billion.
The country was expecting the IMF to approve the $2.9 billion loan by the end of this year, officials from the country’s central bank told investors earlier in September.
While the debtors- India and Japan have already started a dialogue with Sri Lanka on debt reconciliation and restructuring, China is yet to engage in the dialogue as Beijing was involved in the 20th National Party Congress, which elected Xi Jinping for a third term and had little time for Sri Lanka.
It is struggling with its worst economic crisis in more than seven decades, which has led to shortages of essentials and the ouster of a president.
Meanwhile, the debt has increased further due to forex depreciation, deep recession and burgeoning fiscal deficit. Since the end of 2021, inflation has considerably eroded the real value of domestic debt.
The total debt of the nation was $36 billion at the end of 2021. Of this total debt, Colombo owes $7.1 billion to China or 20 percent.
“Now, this is the process, we had to move. If we can move and come to an agreement by December, which means coming to an agreement by mid-November, and going up to the IMF Board in mid-December, we will gain a big advantage,” Sri Lankan President Ranil Wickremesinghe said last week.
“However, I don’t know whether we can do it for the simple reason that in China the focus has started now after the party conference. However, we must aim to have it by January,” he added.
It now requires a bridge gap funding of $850 million to survive till the next IMF meeting in March or there will be public protests like the one the country witnessed in July-August this year.
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