The most severe economic crisis since Sri Lanka gained independence in 1948 occurred in 2021 and 2022 and people reeling under economic hardship had no choice but to seek international assistance.
The UNP leader, Ranil Wickremesinghe, was elected president by Parliament because they were confident the UNP leader could turn around the ailing economy.
They speculated that there was no one with the innate talent to revive the economy in their government other than Wickremesinghe.
Besides, India helped Sri Lanka in this harrowing situation by providing food aid, medicine, and other essentials, including fuel, at a cost of nearly four billion US dollars.
During the early part of the year 2022, while attending a spring meeting, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva appreciated India’s help to Sri Lanka in tackling its economic crises while assuring Finance Minister Nirmala Sitharaman that the financial institution would continue to actively engage with Sri Lanka.
Georgieva made these remarks during the Spring Meetings of the IMF and World Bank (WB) in Washington, DC, with Sitharaman.
In April last year (2022), Sri Lanka sought India’s help in garnering international support to secure bridge financing as it was about to enter into negotiations with the IMF for a bailout package.
According to an official statement, India urged the International Monetary Fund (IMF) to urgently provide financial assistance to Sri Lanka to help the island nation cope with its largest economic crisis in decades.
An Indian government statement, said the matter figured in Finance Minister Nirmala Sitharaman’s meeting with IMF Managing Director Kristalina Georgieva on the sidelines of the IMF-World Bank spring meetings in Washington. Additionally, Sitharaman met with Ali Sabry, Sri Lanka’s counterpart.
Sitharaman assured Sabry of “India’s full support for Sri Lanka to move forward” and emphasized New Delhi’s commitment to strengthen the development of the Sri Lankan economy and build stronger bonds between the two sides.
India has provided Sri Lanka with financial aid worth almost $2.5 billion since the beginning of the year, including a $500 million line of credit in February for fuel purchases and another $1 billion line of credit in March for buying food, medicines, and other essential items.
SL signs staff-level agreement with IMF
Meanwhile, Sabry met Georgieva in Washington and made a request for a rapid financing instrument (RFI) from the IMF. The IMF informed Sabry that India too had made representations on behalf of Sri Lanka for an RFI (rapid finance instrument), Sri Lanka’s finance ministry said in a statement.
“Despite being outside of the standard circumstances for issuance of an RFI, the IMF will consider the special request made,” said the Sri Lankan statement.
Immediately afterwards Sri Lanka signed the staff-level agreement with the International Monetary Fund on September 1 for a $ 2.9 billion, four-year Extended Fund Facility (EFF), the Finance Ministry was to make presentations to creditors to update them on macroeconomic developments in the country, the main areas of the reform package agreed with the IMF staff, and the next steps of the debt restructuring process.
India, Japan, and the Paris Club were the main creditors of Sri Lanka and India, the closest neighbor was the first responder to Sri Lanka’s call for debt restructuring.
Subsequently, Sri Lanka made a presentation to its international creditors, listing out a full dossier of its economic woes and plans for debt restructuring. The Indian High Commission added that New Delhi would continue to support Colombo “in all possible ways, in particular by promoting long-term investments in key economic sectors such as power and energy, ports, rail transport, etc.”
In the year 2022, India’s support for Sri Lanka included a $400 million currency swap, a $1 billion credit line for essential goods, and a $500 million line for fuel. In addition, India has also deferred payment on Sri Lankan imports of about $1.2 billion and given a credit line of $55 million for fertilizer imports.
The High Commission, in the meantime, said India had several development projects in progress worth about $3.5 billion in Sri Lanka.
President Ranil Wickremesinghe earlier asked his officials to remove all hurdles to expedite projects backed by India.
Indo Lanka ECTA
President Ranil Wickremesinghe has also said Sri Lanka will turn a free trade agreement with India into comprehensive economic and technological cooperation similar to ECTA.
The High Commission of India in Colombo held the first round of talks with Sri Lankan officials bordering on debt restructuring on September 16 of last year.
Against this backdrop, External Affairs Minister S. Jaishankar’s visit to Colombo in January this year was crucial since his visit focused mainly on the “support” Sri Lanka is receiving from India in its current economic crisis, government sources said, adding that talks centered around the fields of energy security, food security, currency swap arrangements, as well as talks about restructuring Sri Lanka’s debt.
“India gave a positive response to Sri Lanka’s requirements, in keeping with India’s support last year as well,” said a source, citing India’s combined package of about $4 billion, including loans, credit lines for the purchase of essentials, and a loan deferment through the Asian Clearing Union.
Sri Lankan President Ranil Wickremesinghe said that he had discussed the need for the debt restructuring program with all of Sri Lanka’s creditors, including the 22-nation “Paris Club” of 22 developed nations that hold much of the global debt, and discussed solutions to the debt crisis together.
Japan and the Paris Club, two of our major creditors, have expressed their willingness to assist.
He said that Sri Lanka’s “only” option was to seek the support of the International Monetary Fund (IMF) for a nearly three billion dollar bailout and was also hopeful of a package from the Asian Development Bank (ADB).
Sri Lanka had hoped to finalize its IMF bailout package next week.
Two Foreign Ministers meet
Meanwhile, the External Affairs Minister of India, Dr. S. Jaishankar, concluded his official visit to Sri Lanka on January 20, 2023. During the visit, Minister Jaishankar held bilateral discussions with Minister of Foreign Affairs Ali Sabry on January 19, 2023, and was hosted to dinner by the Foreign Minister.
On behalf of President Ranil Wickremesinghe, the Government, and the people of Sri Lanka, Minister Sabry conveyed gratitude to his Indian counterpart for the significant assistance extended by India to Sri Lanka in the past year, including USD 4 billion in credit lines as well as other in-kind assistance, when the country was going through its most serious economic crisis.
Minister Sabry also appreciated India’s announcement as the first country to officially back Sri Lanka’s IMF-led debt restructuring program by conveying financing assurances to the International Monetary Fund.
The Indian Minister reiterated that the primary purpose of his visit to Colombo was to express India’s solidarity with Sri Lanka in these difficult times. This is in line with the “neighborhood first” policy of Prime Minister Modi.
It was India’s intention to clear the way for Sri Lanka to move towards recovery and growth.
Foreign Minister Sabry noted that India was one of the fastest-growing economies in the world. Sri Lanka recognizes that India’s growth will provide opportunities for Sri Lanka. India is Sri Lanka’s largest trade partner, the largest source of inward tourism, and one of its largest investors. (www.ndtv.com)