Is Sri Lanka on track to access funds from the IMF?

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 the 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, as Beijing was involved in the 20th National Party Congress.

The next meeting of the IMF executive board is in March 2023, Sri Lanka will most likely have to wait until then for IMF Board approval, and access to the funds.

Why is China's involvement so important to access IMF funds?

Sri Lanka is now considered a country that defaulted on its external debt because the island nation lacked foreign reserves for debt servicing.

According to the Central Bank of Sri Lanka and the Finance Ministry, Sri Lanka's total debt was $36 billion at the end of 2021.

Of this total debt, Colombo owes some 52% in bilateral credit to China, 19.5% to Japan, and 12% to India.

One of the main conditions for Sri Lanka to tap the USD 2.9 Billion funding from the International Monetary Fund is debt reconciliation and restructuring.

Bilateral means transactions between two countries, and there is an institution that operates with the support of the International Monetary Fund to talk about bilateral debt, and this is called the Paris Club.

Sri Lanka has obtained a large number of loans from Japan, India, and China, and among them, only Japan is a member of the Paris Club.

India is openly supporting Sri Lanka's engagement with the IMF, and avenues are open for Sri Lanka to discuss debt reconciliation and restructuring with its neighbour.

However, the issue lies with China.

Sri Lanka has to engage with China on how to restructure the debt given by China.

What has Sri Lanka done with Chinese loans? 

Sri Lanka used loans from China to invest in the Hambantota Port, Mattala Airport, Lotus Tower in Colombo, and Expressways.

Unfortunately, the return on investments was not enough to service the Chinese debt.

Some of these projects have been handed over to China labelling them as investments, however, the debt is yet to be settled.

The IMF has informed Sri Lanka to boost its revenue streams so that the debt can be serviced.

The IMF also looks at cutting down state expenditure and eradicating corruption to consider releasing funds to Sri Lanka.

According to Former Foreign Minister G. L. Peiris legitimacy of the government is also crucial.

Three major factors influence the approval of the IMF Executive Board for Sri Lanka to access the funds.

• Debt relief from China

• Taking necessary measures to prevent corruption and

• A legitimate government that represents the true mandate of the people.