New Delhi, India: India handed the letter of support meant for financing and debt relief for Sri Lanka on January 16, 2023, therefore becoming the first country to extend its support for the island nation. Earlier in 2022 also, financial aid of $4.5 billion was mobilized for Colombo to tackle the financial crisis. Although Sri Lanka has upheld the China-funded white elephant project against India, the Indian government was the first to land in their support.
At the same time, it is expected that China might hand over the support letter to the IMF on Sunday. It is noteworthy that the support from India was handed four days prior to Indian External Affairs Minister S Jaishankar’s meeting with Sri Lankan leadership, including President Ranil Wickremesinghe, on January 20.
During the meeting, S Jaishankar assured that India continues to stand with its neighbour at the time it needs the most and attributed the visit to Prime Minister Modi’s neighbourhood-first policy.
In the letter of support, the Indian finance ministry acknowledged Sri Lanka’s debt crisis and its extended support. Additionally, it ensured that India would support Sri Lanka in restoring its public-debt sustainability in compliance with IMF supported programme, which stays fulling financed as projected by the Bretton Woods Institution. The financial aid will be provided by, the Export-Import Bank of India, stated the Indian Prime Minister.
The financing that EXIM Bank of India will provide will aim at restoring the debt sustainability under the IMF-supported program and its assessment will be underpinned by program targets of reducing the ratio of Sri Lankan public debt to GDP to below 95% by 2032 (from 130% in 2022).
Additionally, it looks at reducing the central government’s annual gross financing needs to 13% of GDP on average in 2027-2032, and the Sri Lankan government’s annual foreign currency debt service below 4.5% of GDP every year during the above time frame.