Exclusive-China offers Sri Lanka debt moratorium, promises deal on debt treatment -letter

By Devjyot Ghoshal and Uditha Jayasinghe

COLOMBO (Reuters) – The Export-Import Bank of China has told Sri Lanka it will not seek immediate repayment of debt for 2022 and 2023 and expedite negotiations on “medium- and long-term debt treatment” to finalise specifics in the coming months, according to a letter seen by Reuters.

The International Monetary Fund said on Tuesday that Sri Lanka had secured financing assurances from China, India and all its major bilateral creditors, setting the stage for final approval of the IMFs $2.9 billion, four-year bailout for the island nation on March 20.

Sri Lanka is facing its worst economic crisis in more than seven decades and a shortage of dollars has disrupted imports of essentials, though the situation has improved this year from last year when protesters ousted a president.

China has extended its “firm support to Sri Lanka through a debt treatment”, EXIM Bank wrote in the letter to the Sri Lankan government on March 6.

“You will not have to repay the principal and interest due of the bank‘s loans during the above-mentioned period, so as to help relieve your short-term debt repayment pressure,” the bank’s vice president, Zhang Wencai, said in the letter.

“Meanwhile, we would like to expedite the negotiation process with your side regarding medium- and long-term debt treatment in this window period, with a view to finalising the specifics of a debt treatment in the coming months. We will make our best efforts to contribute to the debt sustainability of Sri Lanka.”

By end-2020, Sri Lanka owed EXIM $2.83 billion, or 3.5% of its external debt, according to IMF data. In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of its public external debt, by end-2022, calculations by the China Africa Research Initiative showed.

The letter added that China would call on “commercial creditors to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make contributions to help you better respond to the crisis and emerge from it”.

(Reporting by Devjyot Ghoshal and Uditha Jayasinghe; Writing by Krishna N. Das; Editing by Kim Coghill)