India becomes first to offer letter of support to IMF for funding & debt restructuring of Sri Lanka

India: As a symbol of its ongoing support for the economic recovery of the island nation, India became the first nation to deliver its letter of support for funding and debt restructuring of Sri Lanka to the International Monetary Fund, on Monday. India gave Colombo $4.5 billion in aid in 2022 to help it get through its catastrophic economic predicament.

While Sri Lanka has frequently used the Chinese card against India and suffered as a result of white elephant projects financed by Beijing, the Modi government was the first to provide Colombo with a letter to the IMF requesting debt relief.

The IMF received New Delhi’s letter of support on January 16, four days before External Affairs Minister S. Jaishankar arrived in Colombo to meet with Sri Lanka’s political leadership on January 20. China is anticipated to deliver its letter of support to the IMF on Sunday.

Jaishankar made it clear during his discussions with Sri Lankan officials that India supports its neighbour in times of need and is ready to go above and beyond if necessary. The minister claimed that by travelling to Sri Lanka, Prime Minister Narendra Modi was putting his “neighbourhood first” philosophy into practice.

The finance ministry of India expressed its strong support for Colombo’s potential extended finance facility-supported programme in a letter to the IMF addressed to IMF Managing Director Kristalina Georgieva. The letter acknowledged Sri Lanka’s deeply unsustainable debt situation and the country’s engagement with creditors to restore debt sustainability.

In order to restore Sri Lanka’s public debt sustainability under the IMF-supported programme and to ensure that the programme is fully financed as anticipated by the Bretton Woods Institution, New Delhi has made it clear that it is committed to providing financing and debt relief in accordance with that goal. The Export-Import Bank of India would give this financing and debt relief, according to the Modi-led administration.

India has stepped up to support Colombo, which is dealing with both economic and political unrest, despite the fact that white elephant infrastructure port and airport projects funded by high-rate loans from Chinese banks are a contributing factor in Sri Lanka’s economic crisis.

The EXIM Bank of India’s financing-cumulative debt reduction will be consistent with re-establishing debt sustainability under the IMF-supported programme. According to information provided to the Modi government, the IMF’s debt sustainability assessment will be supported by programme goals to lower the ratio of Sri Lanka’s public debt to GDP from 130% in 2022 to below 95% by 2032, lower the average annual gross financing needs of the central government from 2027 to 2032 to under 13% of GDP, and lower the annual foreign currency debt service to under 4.5% of GDP in each year of the aforementioned period. The island nation’s lack of foreign money is the other goal.

Apart from adequate funding contributions from the multilateral development banks, India has made it plain to the IMF that Sri Lankan authorities are expected to request equitable debt treatment from all commercial creditors as well as official bilateral creditors.

India has expressed its willingness to hold extensive discussions with the Sri Lankan government, IMF, and Paris Club, so that debt relief and financial arrangements are made for the troubled island nation in the next weeks, supporting IMF efforts on the aforementioned issues.