ECONOMYNEXT – Ahead of a two-day official visit by India’s external affairs minister S Jaishankar, the Indian government has informed the International Monetary Fund (IMF) that it strongly supports Sri Lanka’s debt restructuring efforts in the latter’s bid to secure a 2.9 billion dollar extended fund facility (EFF).
“We hereby confirm our strong support for Sri Lanka’s prospective EFF-supported programme and commit to supporting Sri Lanka with financing/debt relief consistent with restoring Sri Lanka’s public debt sustainability under the IMF-supported programme and ensuring that the programme is fully financed as projected by IMF staff,” a letter dated January 16 and addressed to IMF chief Kristalina Georgieva by Indian finance ministry official Rajat Kumar Mishra said.
The financing and debt relief will be provided by the Export-Import Bank of India, said Mishra in his letter.
According to the official, India will continue to negotiate with the Sri Lankan government and with the Paris Club on a medium-to-long term debt treatment through maturity extension and interest rate reduction or any other financial operations that would deliver similar financing/debt relief.
“We understand that the IMF’s debt sustainability assessment will be underpinned by the programme targets of (i) reducing the ratio of public debt to GDP to below 95 percent by 2032, the central government’s annual gross financing needs below 13 percent of GDP on average in 2027-32, and the central government’s annual foreign currency debt service below 4.5 percent of GDP in every year 2027-32; and (ii) closing Sri Lanka’s external financing gap,” the letter to the IMF managing director said.
“We would like to stress that the Sri Lankan authorities are expected to seek equitable debt treatments from all commercial creditors and other official bilateral creditors, as well as adequate financing contributions from the multilateral development banks. We stand ready to support your efforts on these,” it said.
The Indian official added that his government looks forward to cordial and in-depth discussions with the Sri Lankan authorities, the IMF and the Paris Club with a view to finalising the specifics of the matter in the coming weeks.
The letter ahead of a planned visit by India’s External Affairs Minister S Jaishankar who is scheduled to engage in official discussions with Sri Lanka President Ranil Wickremesinghe, Prime Minister Dinesh Gunawardena, Foreign Minister Ali Sabry and other officials.
The government of Sri Lanka has yet to officially comment on India’s communication to the IMF as Sri Lanka awaits assurances from both India and China on their assistance with debt restructuring, a prerequisite for securing the IMF bailout.
Opposition MP Harsha de Silva, who tweeted a copy of the letter Wednesday evening, thanked India for helping Sri Lanka restructure its debt to the emerging superpower adding that he assumes China will follow suit.
IMF board approval for the EFF is contingent upon debt sustainability and a successful restructure of Sri Lanka’s external debt.
Tensions have been simmering between China and the West and regional power India over Sri Lanka, which all countries have expressed a strategic interest in, and all parties have made overtures to the island nation with regard to its worsening currency crisis since it blew up in early 2022.
Colombo owes Beijing some 7 billion US dollars while India is owed up to a billion. China has reportedly been reluctant to write down Sri Lanka’s debt because of possible implications to loans it has extended to other developing countries.
President Wickremesinghe, however, told parliament on Tuesday that talks with China and India have been successful.
“We will have an answer very soon,” he said.
A high level delegation of China’s Communist Party (CPC), led by Vice Minister Chen Zhou, Head of the CPC International Department called on Sri Lanka’s Prime Minister Dinesh Gunawardena on January 16.
“Sri Lanka is a very special friend of China and we are considering how we could assist Sri Lanka to get over the current crisis,” Chen Zhou was quoted as saying.
“You will have some good news soon.”
Meanwhile, the Chinese embassy in Colombo has taken umbrage at what it called the hypocrisy of US Ambassador Julie Chung for an alleged “China China China” mantra and for calling Beijing a “spoiler” in Sri Lanka’s negotiations with the global lender.
In a statement issued in not-uncharacteristically scathing and borderline undiplomatic language, the Chinese embassy chastised their “US colleague” for remarks she had made in a recent interview given to the BBC on Sri Lanka’s ongoing currency crisis.