Sri Lanka-IMF meet affects credit talks with China, envoy Says

Sri Lanka is facing shortages of food, fuel and medicines as its foreign reserves dry up and it heads for a default on its international debt.

Sri Lanka’s meeting with the International Monetary Fund for a bailout has impacted ongoing credit talks with Beijing, China’s envoy to the country, Qi Zhenhong, told reporters on Monday.

Sri Lankan university students march during a protest over the country’s worst economic crisis in decades outside the residence of prime minister Mahinda Rajapaksa in Colombo, Sri Lanka. (AP)

“Sri Lanka going to IMF with a short notice has unavoidably impacted the discussion,” Qi told a briefing, adding that China is closely monitoring the discussion between the country and the multilateral lender.

Last month, China had said it was considering a $1 billion loan and a $1.5 billion credit line to purchase goods from China, both of which were new lines of financing.

A delegation from Sri Lanka engaged in initial technical discussions with the lender last week for a bailout package to unlock emergency funds needed to ease its worsening economic crisis.

“We can’t comment now on a possible loan to Sri Lanka,” Qi said.

Sri Lanka is facing shortages of food, fuel and medicines as its foreign reserves dry up and it heads for a default on its international debt. The economic decline in recent weeks has spiraled into a domestic crisis, with protests seeking the ouster of President Gotabaya Rajapaksa.

Sri Lanka has about $2 billion of foreign-currency reserves against total debt due this year of as much as $7 billion, including $1 billion of notes maturing in July. It has already drawn down a $1.5 billion swap line provided by China last year, a part of which was used to repay foreign-currency bonds due in January.

The island nation had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data.