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Sri Lanka looking to IMF for bailout

Sri Lanka Financial turmoil

The president stated on Tuesday that Sri Lanka anticipates receiving final approval from the IMF for a $2.9 billion loan in the third or fourth week of this month, adding that increased backing from China meant that all finance requirements had been satisfied.

The 22 million-person nation is experiencing its biggest economic crisis since gaining independence from Britain in 1948.

President Ranil Wickremesinghe told parliament there were signs the economy was improving but there was still insufficient foreign currency for all imports, making the IMF accord important so other creditors could also start releasing funds.

Wickremesinghe stated that Sri Lanka had completed all earlier tasks imposed by the IMF.

He said that the IMF had received “a new letter” from the Export-Import Bank of China on Monday, as well as a letter of intent from him and the governor of the central bank.

Rajapaksa, a former president of Sri Lanka, wants permission to visit Thailand
He stated, “We expect clearance for the scheme either in the third or fourth week of March as a result of this move and finance commitments from India and the Paris Club.

As a result of the announcement, both the nation’s foreign debt and currency surged higher. Bond prices increased by about 3 cents on the dollar, and the rupee increased by almost 8% to a 10-month high.

What new assistance China, the largest sovereign creditor in the world, gave Sri Lanka on Monday is unclear.

The Export-Import Bank of China gave Sri Lanka a two-year debt moratorium in January and stated that it would support Sri Lanka’s efforts to obtain the IMF loan, but a Sri Lankan source claimed at the time that this was insufficient to satisfy IMF requirements.

The two largest lenders to Sri Lanka are China and India. According to IMF data, Sri Lanka owes the Export-Import Bank of China $2.83 billion by the end of 2020, or 3.5% of the island’s external debt.

“A lot of optimism”

According to estimations by the China Africa Research Institute, Sri Lanka would owe Chinese lenders a total of $7.4 billion by the end of 2022, or nearly a quarter of its entire external debt.

Analysts claim that on Tuesday, the Sri Lankan rupee gained 12% and reached a mid-rate of 325 versus the spot rate of 337.67 established by the central bank. Better dollar inflows from tourism and remittances, optimism over the impending acceptance of an IMF deal, and a decline in imports, according to analysts, were the main drivers of the rise.

There is a lot of optimism surrounding a potential IMF decision, and more dollar loans are expected with an acceptance of the bailout, according to Udeeshan Jonas, chief strategist at equities research firm CAL Research. The Chinese research ship Yuan Wang 5 docks at Sri Lanka’s Hambantota port.

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