Finance Minister Nirmala Sitharaman puts in a word with IMF, assures Lanka of ‘cooperation’

Union Finance Minister Smt. @nsitharaman assured Sri Lanka that as a close friend and good neighbour, India will try to extend all possible cooperation and assistance to Sri Lanka. (2/2)

— Ministry of Finance (@FinMinIndia) April 18, 2022

“Union Finance Minister Smt. @nsitharaman assured Sri Lanka that as a close friend and good neighbour, India will try to extend all possible cooperation and assistance to Sri Lanka,” it added.

India has so far committed $1.9 billion to Sri Lanka in the form of credits for essential commodities and fuel, and also in loans and currency swaps.

With the acute shortage of forex, an Indian credit line of $500 million for fuel imports has provided a lifeline to the island nation.

Reuters reported that India “is willing to commit up to another $2 billion in financial assistance to Sri Lanka…as New Delhi tries to regain ground lost to China in recent years.”

The Sri Lankan government delegation is in the US to engage with the IMF to secure a $4 billion package as it desperately tries to salvage the country’s beleaguered economy, which is currently reeling under a severe forex crisis. During a meeting between Sitharaman and Sri Lanka’s High Commissioner to India Milinda Moragoda last Wednesday, the issue of New Delhi extending bridging finance required by Colombo until its economic adjustment programme with the IMF was negotiated was discussed.

In January, India had extended a $400-million currency swap to Sri Lanka under the SAARC Framework and to defer an Asian Clearing Union settlement of $515.2 million until May 6, 2022.

A new Line of Credit of $500 million was extended to Sri Lanka by India for importing fuel from India. In addition, India has extended a credit facility of $1 billion for the procurement of food, medicine and other essential items from India.

The US visit by the Sri Lankans comes after the nation’s Finance Ministry announced last Tuesday that it is suspending repayments of foreign debt, including bonds and government-to-government borrowing, pending the completion of a loan restructuring programme with the IMF. Sri Lanka had to meet $7 billion of debt payments this year. This was the first ever debt default by Sri Lanka in its history.