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Sri Lanka gets breather from China but debt trap problem remains

China's debt diplomacy has not yielded the desired results (Photo: IANS)

China has assured Sri Lanka once again of help in restructuring its bilateral loans in a bid to support the island nation acquire a $2.9 billion bailout loan from the International Monetary Fund (IMF).

Sri Lankan President Ranil Wickremesinghe informed the Parliament on Tuesday that the government received a letter from the Chinese Exim Bank on Monday night and he immediately wrote to the IMF for a bailout loan. Wickremesinghe also said that once the deal with the IMF is signed, he would present it before the Parliament.

In a special statement made to the Parliament, the President said: “Once the IMF agreement is reached, the agreement would be tabled in Parliament. I request the House to accept it or give an alternative”.

One of the IMF conditions for a bailout loan to Sri Lanka is that the country gets its bilateral donors to restructure their loans. Of the three biggest bilateral donors – China, Japan and India, it was Beijing that had remained non-committal. Both India and Japan had assured the World Bank and the IMF that they were supportive of Sri Lanka getting the loan. China was, however, playing a spoiler and was under pressure from the US, India and Japan to help Sri Lanka come out of the economic mess.

This would be the 17th time that Sri Lanka would be taking a loan to bail itself out from a financial crisis.

China’s offer of help to Sri Lanka is nowhere near what India has done for Sri Lanka over the past one-and-a-half years. India not only propped up the Indian Ocean island neighbour with $4 billion support last year but also lobbied international donors in favour of Sri Lanka.

A news report in the Hindustan Times says that China has only proposed a two-year loan moratorium to Colombo for 2022 and 2023 to relieve short-term debt repayment pressure in a bid to help the country get the IMF loan. This proves that China is not budging from its stand to take a haircut on its $7.4 billion debt to Colombo. This debt is related to the unsustainable and grand infrastructure projects like ports, airports and roads which have not generated either profits or employment for Sri Lankans.

On the other hand India has offered a 10-year loan moratorium and 15-years for debt restructuring to Colombo to help it tide over its problems.

Also read: Is China blocking Sri Lanka’s access to an IMF bailout package?