China Backs Sri Lanka’s Decision To Engage With The IMF To Restructure Debt

On May 2, China officially backed support for Sri Lanka’s decision to work with the International Monetary Fund (IMF) in order to restructure the nation’s current debt crisis and help alleviate its economic, political, and social issues. With default of a little over $50 billion in foreign debt, rising interest rates, as well as a myriad of riots and social dismay disrupting the current state of the country, Sri Lanka’s government saw it as necessary to set up negotiations with the Fund to tackle this issue with alongside international entities.

As one of Sri Lanka’s most influential and largest bilateral lenders with about $6.5 billion in loans and a major shareholder of the IMF, it has been reported by Lankan News that China’s Ambassador Zhenhong is open to participating in “an active role in encouraging the IMF to positively consider Sri Lanka’s position and to reach an agreement as soon as possible.” Furthermore, China has pledged “an urgent emergency humanitarian aid” of roughly $31 million to Sri Lanka, including 5,000 tonnes of rice as well as medicine and raw materials, even as the country’s capital, Colombo, pursues $4 billion in support from the International Monetary Fund. This 4 billion bailout proposition made by Sri Lanka has caused strife and dismay from China, arguing that this haste decision will impact negotiations and, as WION News states, will affect future bilateral loans between the two nations. 

The first time suspending its debt servicing and defaulting on loans in its 74 years of independence, Sri Lanka’s current economic crisis has been blamed on the recent government’s mishandling of finances, where the Rajapaksa administration has played a significant role in the country’s worsening economy and has been criticized for not seeking out the IMF earlier in order to tackle the country’s foreign debt issue. Even President Rajapaksa has even acknowledged these criticisms regarding his policies as well as the general hardships faced by the country, detailing to Vox that “during the last two and a half years [Sri Lanka] has had vast challenges. The Covid-19 pandemic, as well as the debt burden, and some mistakes on [the administration’s] part.” 

It is necessary that the IMF, World Bank, influential nations, and various other international institutions be accepting of Sri Lanka’s effort to seek out aid. According to a statement sent to the public by the IMF, the Sri Lankan government will be given an interim amount between $300-$600 million, which will be spent on obtaining medicines and other essential items. These loans offer assistance not only to the government in order to evolve into a stable polity once again, but it is also crucial for the citizens of Sri Lanka, who will truly be most affected by this financial outcome. Due to circumstances outside of their control, Sri Lankans have endured months of shortages surrounding essentials, including food, cooking gas, fuel and medicine, where they have then been forced to wait for hours in lines in order to buy the limited stocks available. However, a deal between the IMF and Sri Lanka may take months to come to fruition before any money is provided; thus, other institutions and nations must step in during this period to help lift the economic burden and ensure the well-being of Sri Lankans is met across the country.