Sri Lanka turns to China rather than IMF to avoid default
Sri Lanka's ultranationalist government looks set to receive a financial lifeline from China rather than an International Monetary Fund bailout to avoid defaulting on foreign debts, affirming the Asian giant as lender of the last resort to the strategically located South Asian island nation.
President Gotabaya Rajapaksa's government desperately needs cash to service over $15 billion dollars owed to foreign creditors. China eased some of the tension earlier this year by injecting $500 million as part of a $1.2 billion syndicated loan from the China Development Bank. "We have been in touch with the China Development Bank," Nivard Cabraal, minister of money and capital market and state enterprise reforms, told Nikkei Asia. "We are now negotiating the additional $700 million." The second tranche is wanted for the end of the year. "There are options available for Sri Lanka to have inflows coming in from our bilateral partners, and we are confident that they will materialize," said Cabraal, who was governor of the Central Bank of Sri Lanka for nearly nine years until 2015.
"If we have to go and hold the IMF's hand or if the IMF has to hold our hand that, I think, is a danger signal," he said. "We know we have to get our debt situation under control. Do we need the IMF to say that? No." Sri Lanka's preference for China is tied to the country's complex history with the multilateral lender in Washington D.C. Colombo has needed IMF bailouts 16 times over the past 55 years. That places it second only to Pakistan, which has gone to the IMF 20 times – making it the most IMF-dependent of the world's debt-strapped nations.
Only nine of the 16 IMF programs in Sri Lanka were completed. Sri Lanka last went to the IMF in 2016 during the right-of-center coalition government that preceded the incumbent Rajapaksa government. It sought a $1.5 billion extended fund facility, which came to an abrupt end with the new administration produced by elections in November. "Sri Lanka has a bipolar relationship with the IMF," Nishan De Mel, executive director of Verite Research, a Colombo think tank, told Nikkei. Like the World Bank, its Bretton Woods twin, the IMF is seen as having "imperial and colonial" trappings. "Part of Sri Lanka's political tradition views the IMF with suspicion, and going to it is presented as having a negative outcome," he said. Consequently, Sri Lanka has become a hunting ground for Chinese creditors with deep pockets. The Rajapaksa government was voted into power on the back of ultranationalist sentiments, and needs dollars to service its multibillion dollar international debts and to run a current account deficit estimated at $1.1 billion annually.
In 2018, Sri Lanka secured a syndicated loan from China Development Bank. Later that year, another Chinese bank offered to buy the entire $1 billion sovereign bond issue, a banking source in Colombo told Nikkei. The previous government declined "in the interest of diversity" ensuring it did not appear completely under obligation to Chinese creditors the banking source added.
October provided another glimpse of the ticking national debt clock. Sri Lanka settled a $1 billion maturing international sovereign bond at the beginning of the month by digging into its foreign reserves, which duly shrank to $6.4 billion. Far bigger debts loom with annual settlements of $4.5 billion to $5 billion due for the next three years.
moar
https://asia.nikkei.com/Politics/International-relations/Sri-Lanka-turns-to-China-rather-than-IMF-to-avoid-default