With only India has given its assurance in writing (in a letter) to the IMF following proper procedure, but China, Japan. Paris Club group of creditor nations and other key creditors are yet to give their assurances in an agreeable manner to unlock the US$2.9 billion bailout loan for Sri Lanka.

Under this set up, the Paris Club has yet to formally reach out to China, Colombo is still to initiate a formal dialogue with them, and the chances of the International Monetary Fund (IMF) approving its 2.9 billion dollar extended fund facility for Sri Lanka in three months now ranges from very low to nonexistent.

Referring to current status of the IMF extended fund facility (EFF), Peter Breuer, Senior Mission Chief for Sri Lanka says the initial disbursement under the EFF is available at Board approval, which is contingent on the implementation of prior actions by the authorities and the progress with discussions with creditors on restoring debt sustainability.

The latter specifically requires receiving assurances from Sri Lanka’s official creditors to restore debt sustainability and the authorities making a good faith effort to reach a collaborative agreement with private creditors.

Masahiro Nozaki, Mission Chief for Sri Lanka points out that it is difficult to predict the timeline for the Board approval, as the process of debt discussions takes time

All parties who are involved in the process should move expeditiously, so that Sri Lanka can emerge from the crisis as quickly as possible, he added.

The Paris Club group of creditor nations has proposed a 10-year debt moratorium on Sri Lankan debt and 15 years of debt restructuring as a formula to resolve the island nation’s prevailing currency crisis.

Paris club is waiting for the response China to hand over their letter of assurance but now it is further delayed as China’s announcement on its assurances of two your debt moratorium is not acceptable for IMF guide lines.

The ball is now in Sri Lanka’s Foreign Ministry’s court because China, a major bilateral and commercial creditor, has come out as the ‘holdout creditor,’ blocking the smooth debt restructuring plan prepared by the Finance Ministry for use at the Paris Club dealing with bilateral loans and London Club dealing with commercial loans.

China says ‘no to a haircut,’ the normal method of restructuring debt accepted by the IMF , and offers only a debt moratorium under which Sri Lanka will not pay loan instalments for two years.

It provides a relief to Sri Lanka’s strained foreign payments, but it does not reduce its foreign debt liabilities because deferred loan instalments will be added to the principal, increasing the total amount repayable.