COLOMBO: Sri Lanka's president said Tuesday that China had agreed to restructure its loans to the bankrupt island nation, clearing the final obstacle to a long-awaited International Monetary Fund bailout. An unprecedented economic crisis has seen Sri Lanka's 22 million people suffer acute food, fuel and medicine shortages, along with extended blackouts and runaway inflation.

President Ranil Wickremesinghe's government has been working to repair Sri Lanka's ruined finances and secure the sorely needed IMF rescue package. But it was held up by debt negotiations with China, its largest bilateral creditor.

Wickremesinghe told parliament Beijing had now agreed to a restructure and that he expected the first tranche from the Washington-based lender's promised $2.9 billion in funds to be released within the month. "We have done our part, I hope the IMF will do theirs," he said in a special address to lawmakers.

Wickremesinghe said the state-owned Exim Bank of China had sent a letter to the IMF on Monday night signaling its willingness to go ahead with a restructure. There was no immediate confirmation of the announcement from the bank or the IMF. Sri Lanka defaulted on its $46 billion foreign debt last April.

Just over $14 billion of that is bilateral debt owed to foreign governments, of which China holds 52 percent. Wickremesinghe's government entered into a staff-level agreement with the IMF for a $2.9 billion rescue package in September, but its release was held up pending "financial assurances" from creditors.

Japan and India, its other biggest creditors, along with a host of others known as the "Paris Club" creditor nations, had given assurances earlier this year, leaving only China to give its assent. Financial analyst Murtaza Jafferjee, the head of the Colombo-based Advocata Institute think tank, told AFP "a significant shift in China's earlier position" would have been necessary for the bailout to proceed.

Beijing had earlier proposed a debt moratorium for up to two years instead of taking a haircut on its loans, an offer considered insufficient to meet the IMF's requirements. "It is up to the IMF board to decide if the Exim Bank letter provides sufficient financial assurances they expect from all creditors," Jafferjee told AFP.

'Rebuild this nation'

Sri Lanka's economic crisis culminated last July when tens of thousands of protesters stormed then-president Gotabaya Rajapaksa's official residence, forcing him to flee abroad and resign. Wickremesinghe has imposed sharp tax hikes and ended energy subsidies to repair the nation's finances and meet the terms of the IMF deal. He has also announced plans to sell off loss-making state enterprises, including Sri Lanka's national airline, to satisfy the terms of the IMF bailout.

The president warned last month Sri Lanka would remain bankrupt for at least three more years and acknowledged that his austerity measures had caused discontent. "Introducing new tax policies is a politically unpopular decision. Remember, I'm not here to be popular. I want to rebuild this nation from the crisis it has fallen into," he said then. On Tuesday he told parliament that inflation had eased to about 50 percent, from a high of nearly 70 percent in September. Police have used tear gas and water cannon to disperse several protests against the government's economic reforms in recent weeks. Government doctors and bank employees were among those who went on strike last week, defying a government ban on trade union action by "essential services". - AFP