China pledges support to Sri Lanka in tackling debt challenges ahead of IMF's initial assessment

The International Monetary Fund (IMF) is scheduled to conduct its initial review of Sri Lanka's bailout package, which amounts to USD 2.9 billion and was granted in March of this year. The review is set to take place from September 11 to September 19. This bailout is aimed at assisting Sri Lanka in overcoming its economic challenges. However, the country faces a significant task of addressing its debt situation before the review takes place.

China's reassurance and support in facing debt challenges

China, as Sri Lanka's primary bilateral creditor, has extended its assurance of support to the nation as it grapples with its debt challenges. Wang Yi, the Foreign Minister and Director of the Office of the Foreign Affairs Commission of China's ruling Communist Party, conveyed this commitment during a meeting with Sri Lanka's Prime Minister, Dinesh Gunawardena. The meeting took place on the sidelines of the seventh China-South Asian Expo. Wang emphasized China's steadfast partnership with Sri Lanka and acknowledged the country's friendly stance towards China, particularly on matters concerning China's core interests.

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Sri Lanka is presently engaged in negotiations with its external creditors in order to fulfill the conditions set by the IMF for its first review of the bailout. The bailout, approved in March, spans a period of four years and is intended to stabilize Sri Lanka's economic situation. The country's aim is to secure agreements with all external creditors by the following month. This concerted effort is crucial to effectively restructure the nation's staggering debt amounting to USD 41 billion.

A history of economic challenges

Last year, Sri Lanka encountered its most severe economic crisis to date. The nation faced critical drops in its foreign exchange reserves, leading to shortages in essential commodities like fuel and fertilizers. These shortages prompted public protests due to the adverse effects on daily life. Despite the crisis, Sri Lanka received crucial support from India in the form of credit lines and other facilities totaling over USD 4 billion. This assistance played a pivotal role in helping the country navigate through the crisis and manage the shortages of essential resources and power.

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The IMF has already disclosed its mission to Colombo, scheduled to take place between September 14 and 27. The mission's primary objective is to evaluate the progress made by Sri Lanka in adhering to the terms of the bailout program. The nation's task involves reaching agreements with various external creditors by the upcoming month to initiate the comprehensive debt restructuring plan. As Sri Lanka works to stabilize its economy and address its debt burden, the support of China and other international partners remains critical for the nation's economic recovery and growth.