Jan 22, Colombo: Within days after India officially announced that it will provide the necessary financial guarantees for Sri Lanka, which is burdened by debt, to obtain the USD 2.9 billion loan from the International Monetary Fund, China has also announced that it will provide financial guarantees.

NDTV quoting sources said China has given Sri Lanka a letter saying that it will suspend the repayment of Sri Lanka’s debt for two years and provide the necessary financial guarantees for Sri Lanka to receive the extended loan amount of USD 2.9 billion from the International Monetary Fund (IMF).

India officially informed the International Monetary Fund in writing on the 16th that India will support Sri Lanka’s debt restructuring process.

Sri Lankan authorities stated that China has decided to freeze the debt that Sri Lanka has to pay to China in the short term and that China expects Sri Lanka’s creditors to come together to implement a medium-term and long-term plan, NDTV News Service said.

In a telephone interview Sunday with Bloomberg, State Minister of Finance Shehan Semasinghe has said that Sri Lanka is on track for the requirements of the IMF.

President Ranil Wickremesinghe held a virtual meeting with Exim Bank’s chief earlier this month, while a delegation from China also visited the nation through Jan. 18. Sri Lanka also concluded debt restructuring talks with Japan last week.

Sri Lanka was aiming for board approval from the IMF in the first quarter of 2023. The funds will help the nation mend an economy that has fallen deeper into recession amid sky-high inflation and elevated borrowing costs, and pave the way for further assistance, according to Bloomberg.

“I am confident that the Paris Club would also give its backing,” Semasinghe said. The Paris Club, an informal group of mostly rich, western bilateral creditors, was waiting for China to commit to the debt overhaul before notifying the IMF. Sri Lanka has about $50 billion in foreign currency debt, of which about $10 billion is mainly split between China, Japan and India, according to government data as of December.

Since Sri Lanka defaulted in May, creditors have been going back and forth on the size of losses they are willing to accept and whether local debt should be included in the restructuring.

In a bid to expedite negotiations, Sri Lanka’s government is said to have considered including a special clause in its debt restructuring proposal to assuage doubts among other creditor nations that China — which holds 52% of the nation’s bilateral debt — could be offered better terms. Private creditors own almost 40% of the country’s overall external debt.