Sri Lanka’s usable foreign exchange reserves have fallen to just USD 500 million, leading to the postponement of the March 9 local elections due to a lack of funds. Despite the government claiming to have a foreign exchange reserve of USD two billion, USD 1.5 billion is from China, which comes with strict conditions and may not be usable if Sri Lanka defaults on its debt payments.
The country is looking to the US and Japan to push the IMF and Paris Club of creditors to provide a bailout. At the same time, India has offered support based on the IMF’s recommended debt sustainability analysis.
However, China has yet to come on board with the debt moratorium and restructuring proposed by the Bretton Woods Institution, as it would have to do the same for many other nations facing loan defaults due to the Belt Road Initiative (BRI) in Africa.
Even in its close ally Pakistan, China has only refinanced past debt without offering any aid or haircut. Sri Lanka and Pakistan face similar economic and political situations, with established parties facing anti-incumbency sentiments and corruption allegations.