The International Monetary Fund (IMF) has confirmed receiving India’s written financing assurance in support of Sri Lanka’s economic revival, Reuters news agency reported, while Sri Lanka has expressed hope of completing talks on debt restructuring in six months.

“We confirm that India has indicated to the IMF management that it is committed to deliver financing/debt relief consistent with restoring the sustainability of Sri Lanka’s public debt under the prospective IMF-supported programme,” a spokesperson of the IMF, who welcomed India’s assurance, was quoted as saying.

Meanwhile, speaking at an event in Colombo on Tuesday, Governor of the Central Bank of Sri Lanka P Nandalal Weerasinghe said: “There has been good progress this month with India already pledging financing assurances. We expect assurances from China and Japan soon.”

Following last year’s debilitating economic crash, Sri Lanka decided to seek IMF assistance and reached a staff-level agreement in September 2022. Although the Ranil Wickremesinghe government said an IMF programme would likely kick in before the year ended, its negotiations with creditors dragged on for months.

On January 16, India became the island nation’s first official creditor — China, Japan, and India are Sri Lanka’s three largest bilateral creditors — to send written financing assurances to the IMF, “strongly supporting” Sri Lanka’s debt restructuring plan.

External Affairs Minister S Jaishankar, who was in Colombo last week, said India chose to do “what was right” rather than “wait for others” [creditors].

China’s offer

The Fund’s provisional package of $2.9 billion will be approved by its Board, following similar written assurances from China and Japan. Amid speculation over the top two creditors’ moves, the Export-Import Bank of China wrote to the Sri Lankan Finance Ministry, offering a two-year moratorium on its debt in support of Sri Lanka’s economic revival efforts, local media reports said.

However, the top Chinese bank’s offer is not the same as a written assurance to the IMF that is necessary for the Fund’s Board to approve the provisional package for Sri Lanka, a top source based in Colombo said. Beijing is yet to make any official remarks in this regard.

The IMF has noted that Sri Lanka is currently engaged with China and Japan to obtain them.

“As soon as adequate assurances are obtained and remaining requirements are met, including by the Sri Lankan authorities, a Fund-supported programme for Sri Lanka can be presented to the IMF’s Executive Board for approval that would unlock much-needed financing,” its spokesperson has said.

Debt restructuring process

According to a senior official familiar with the developments, both the IMF and the Sri Lankan government have agreed that none of the official lenders would take a haircut while giving Sri Lanka time to recover with an IMF programme.

“Once the IMF’s Board approves the package, the countries will hold official bilateral negotiations, to work out the restructure plan for their respective loans,” the official told The Hindu, requesting anonymity, citing the sensitivity of ongoing negotiations.

However private creditors, who hold the largest chunk of Sri Lanka’s foreign debt, may have to take a haircut, the source added.

Earlier this month, eminent economists from across the globe urged creditors to cancel Sri Lanka’s debt.

(The writer is a correspondent with The Hindu)