India: On Monday, India showed its commitment to aiding Sri Lanka financial recovery by being the first nation to hand a letter of support to the International Monetary Fund in order to facilitate financing and debt restructuring. India has been offering assistance since 2022 when it gave Colombo a total of $4.5 billion.
However, IMF stated they expected the first letter from China, but they received it from India on Sunday, four days before External Affairs Minister S Jaishankar landed in Colombo to meet Sri Lanka’s political leadership on January 20.
In his meetings with Sri Lankan authorities, including President Ranil Wickremesinghe, Jaishankar emphasised India’s support for its neighbour in difficult times. He indicated that it is willing to go beyond the call of duty if necessary. The minister said his visit to Sri Lanka demonstrated Prime Minister Narendra Modi’s neighbourhood-first policy.
In the letter of support to the IMF, India expressed understanding of Sri Lanka’s difficult financial situation, praised their efforts to bring their debt back to a sustainable level, and strongly endorsed Colombo’s upcoming loan facility programme.
India assured Sri Lanka and its government that they will support the country till the end and will give their best to restore the country’s debts under the IMF support programme, ensuring that the programme is fully financed as projected by the Bretton Woods Institution.
The Modi government has conveyed that the Export-Import Bank of India will provide this financing/debt relief.
Even though Sri Lanka is suffering because of their infrastructure of white elephant and airport projects financed by Chinese banks on high-interest loans, India has come out as the first supporting Colombo, which is battling economically as well as politically.
India has communicated to the IMF that they are determined to keep discussing with the Sri Lankan government, as well as the Paris Club, to find a medium- to long-term debt restructurings solution, such as maturity extension and interest rate reduction or any other form of financial aid that can provide similar debt relief.
The finance will come from the EXIM Bank of India under the IMF support programme. The Modi government has been informed that in order for the International Monetary Fund’s debt sustainability assessment to be successful, Sri Lanka’s public debt to GDP ratio must be decreased to below 95% by 2032 (from 130% by 2022), the central government’s gross financing needs must be less than 13% of GDP on average from 2027-2032, and the Sri Lankan government’s overseas debt payments must be less than 4.5% of GDP every year during that time period. Their next target will be to close the external financing gap of the island nation.