On Monday, India became the first country to hand-over its letter of support for financing and debt restructuring of Sri Lanka to the International Monetary Fund in a sign of its continued support for the island nation’s economic recovery. In 2022, India provided $4.5 billion in assistance to Colombo to tide over its dire economic situation.
Since independence from Britain in 1948, The island nation of 22 million people struggled with the challenges during the past year ranging from a shortage of foreign currency to runaway inflation and a steep recession. Sri Lanka has introduced painful economic measures such as tax hikes and utility rate hikes. Trade unions and opposition groups have organised protests against such measures.
Sri Lanka requires the backing of China and India - its biggest bilateral lenders - to reach a final agreement with the IMF that is essential to help the country emerge from its worst financial crisis in seven decades.
While China is expected to hand over its letter of support to IMF on Sunday, New Delhi handed over its support letter to IMF on January 16, four days before External Affairs Minister S Jaishankar landed in Colombo to meet Sri Lanka’s political leadership on January 20.
In the letter of support to IMF, addressed to IMF Managing Director Ms. Kristalina Georgieva, India’s finance ministry acknowledged Sri Lanka’s deeply unsustainable debt situation, the country’s engagement with creditors to restore debt sustainability, and confirmed its strong support to Colombo’s prospective extended finance facility supported program. New Delhi has made it clear that it is committed to supporting Sri Lanka with financing/debt relief consistent with restoring that country’s public debt sustainability under the IMF supported program and ensuring that the program is fully financed as projected by the Bretton Woods Institution. The India government has conveyed that this financing/debt relief will be provided by the Export Import Bank of India.
The Chinese response came close on the heels of India stepping in first to issue the necessary assurances last week.