The International Monetary Fund insisted on Tuesday that Sri Lanka should start debt restructuring talks with its bilateral lender China amid the island nations plea for a financing loan from the Washington-based fund. "China is a big creditor, and Sri Lanka has to engage proactively with it on a debt restructuring," Krishna Srinivasan, director of the IMF's Asia and Pacific Department told Reuters in an interview. The nation of 22 million is confronted with its worst economic meltdown and political crisis in recent history.
The Parliament also approved extension of emergency for a month on Wednesday to tackle the huge crisis that has forced a leadership change at the top, reported news agency citing a lawmaker.
Six-time Prime Minister Ranil Wickremesinghe was declared President recently after his predecessor fled the nation due to large scale protests over severe shortages of fuel, food and medicines.
The country has nearly $6.5 billion (S$9 billion) debt in financing apart from development bank loans and a central bank swap, according to data from the Institute of International Finance.
China, the world's second-largest economy has heavily invested in the island nation through several projects ranging from highways, port, airport to coal power plant. Japan and India are also bilateral creditors to Sri Lanka.
"Sri Lanka has to engage with its creditors, both private and official bilateral, on a debt workout to ensure debt sustainability is restored," Srinivasan was quoted as saying by Reuters. He also informed that technical talks on a new IMF programme are ongoing with both officials from the finance ministry and the central bank.
Sri Lankan plea to IMF
The crisis-hit nation has urged for an IMF rescue plan to deal with the worst economic crisis since independence in 1948. The South Asian country had defaulted on a bond payment debt earlier this year on its $12 billion overseas debt with private creditors and struggles to pay for imports of basic goods.
"There are some areas where we need to make further progress," Srinivasan mentioned but didn’t clarify on major reforms Sri Lanka should address in order to reach an agreement.
Under the Extended Fund Facility (EFF) programme from the IMF, the fund's 17th plan for the nation, mandates countries to make structural economic reforms. Maldives and Laos are among other nations in the region facing debt crisis.
Srinivasan said the fund is advising countries to "spend more in alleviating the impact on the poor and vulnerable but keeping budget neutral by reducing expenditures elsewhere or raising revenues where feasible."
"It's not just public debt, but also corporate debt and household debt - and that has implications for policymaking," he said. "The debt issue is very significant."