The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure a $2.9 billion loan from the International Monetary Fund, according to a letter reviewed by Reuters.

Regional rivals China and India are the biggest bilateral lenders to Sri Lanka, a country of 22 million people that is facing its worst economic crisis in seven decades.

India wrote to the IMF earlier this month, saying it would commit to supporting Sri Lanka with financing and debt relief, but the island nation also needs the backing of China in order to reach a final agreement with the global lender.

However, China’s January 19 letter, sent to the finance ministry, may not be enough for Sri Lanka to immediately gain the IMF’s approval for the critical loan, Sri Lankan sources with knowledge of the matter said.

According to the letter, China EximBank said it was going to provide “an extension on the debt service due in 2022 and 2023 as an immediate contingency measure” based on Sri Lanka’s request.

“You will not have to repay the principal and interest due of the bank’s loans during the above-mentioned period,” the letter said, adding China EximBank wanted to expedite the negotiation process with your side regarding medium and long-term debt treatment in this period.

By end-2020, Sri Lanka owed China EximBank $2.83 billion or 3.5 percent of the island’s external debt, according to IMF data.

In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed.

“The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain,” China’s letter added.

An IMF spokeswoman confirmed the IMF’s management received India’s commitment but did not comment on the Chinese letter.

Sri Lanka’s foreign and finance ministries and China’s foreign ministry did not respond to questions from Reuters.

One Sri Lankan source, who asked not to be identified because of the sensitivity of the confidential discussions, said the country had hoped for a clear assurance from Beijing along the lines of what India provided to the IMF.

“China was expected to do more,” the source said, “This is much less than what is required and expected of them.”

Debt sustainability

In a letter directly addressed to the IMF, India said last week that the financing or debt relief provided by Export-Import Bank of India would be consistent with restoring debt sustainability under the IMF-supported program.

Another government source with direct knowledge of the talks told Reuters that Sri Lanka would likely share China’s letter with the IMF and seek their opinion on its contents to gauge if stronger assurances were needed.

Comparing the letters showed that India’s was ”comprehensive” in acknowledging debt restructuring parameters from the IMF for middle-income countries such as Sri Lanka, another person with knowledge of the debt discussions added. Meanwhile China’s letter only points to a rebuilding of foreign exchange reserves being key for Sri Lanka without referencing ratios for debt and financing needs, the person said.

“The fact that China’s letter could be acceptable to the IMF will be watched very closely by all private creditors,” said the person on condition of anonymity.

It is unclear what debt relief major lenders such as China - the world’s largest bilateral lender - and India are willing to make further down the line.

Western countries such as the United States and multilateral lenders are pressing Beijing to offer debt relief to emerging economies in distress, and have criticised Beijing for slow progress.

However, news from Zambia on Monday suggests China could be playing a more proactive role. Speaking in the capital Lusaka, the head of the International Monetary Fund Kristalina Georgieva said the lender had reached an understanding in principle with China about a debt restructuring strategy.

China will de facto accept NPV (net present value) reduction on the basis of significant stretching of the maturities and reduction of interest, Georgieva said.

Sri Lanka’s central bank chief P. Nandalal Weerasinghe said on Tuesday the country hoped to complete its debt restructuring in six months.