Sri Lanka finance minister said on Friday that Prime Minister Narendra Modi has guaranteed Colombo of complete cooperation in all economic and social concerns, as well as support at international forums, in order to strengthen the close bilateral ties.
Sri Lanka, which is in the middle of a severe economic crisis brought on by a lack of foreign money, has received a $1 billion loan facility from India. Under a deal struck between the two governments, the State Bank of India (SBI) will offer the “short term concessional loan facility.”
This comes on top of India’s previous $500 million line of credit for fuel purchases and a $400 million currency swap. Sri Lanka has a $9.4 billion foreign exchange deficit and is experiencing its worst economic crisis in decades. Its official reserves dropped to $2.36 billion in January, with a $1 billion sovereign loan repayment due in July.
Sri Lanka has reached this point as a result of its unsustainable debt accumulation over the years, particularly in the form of national bonds. And its only option for repaying the debt was to rely on tourism and remittances from abroad.
The aid will allow Sri Lanka to import food, other necessary commodities, and medications from India, and has been termed as a “humanitarian measure to assist the Sri Lankan people during a difficult period” by an Indian official.
According to a press release from the Sri Lankan High Commission in Delhi, the two sides have agreed to establish a framework for “short, medium, and long-term economic cooperation between the two nations, targeted at tackling Sri Lanka’s current economic issues.”
In a national address on Wednesday, President Gotabaya Rajapaksa declared in a national address that his government would work with the International Monetary Fund (IMF) to get through the crisis, as his brother Basil Rajapaksa landed in Delhi to finalise the credit line.
President Rajapaksa addressed the nation after days of raucous protests in which thousands of protestors chanted chants such as “Go Gota Go” and “Sir Fail” in response to shortages and high prices that have caused daily uncertainty for Sri Lankans across the country.
According to reports, India has even promised to aid Sri Lanka in its negotiations with the IMF.
Why has Colombo sought assistance from New Delhi?
However, the epidemic had a significant impact on Sri Lankan tourism. Add to that the Sri Lankan government’s populist measures, such as granting tax breaks worth 1.5 percent of GDP and other blunders, like converting to 100 percent organic agriculture. This resulted in a severe shortage of dollars for import-dependent Sri Lanka, resulting in an extreme shortage of commodities such as fuel, medications, and food, as well as soaring inflation that hit a new high of 25% last month.
In reality, the crisis-plagued Lankan economy has made China wary of providing additional financial aid to Colombo. This is despite the fact that the current ruling family of Sri Lanka, the Rajapaksas, is known to favour Beijing. True, China helped Sri Lanka shore up its reserves by facilitating a $1.5 billion yuan swap. However, there appears to be an understanding in Beijing that many of the loans provided to Colombo were spent on white elephant projects that did neither benefit the Lankan economy nor gain Chinese goodwill. This is why Colombo is turning to New Delhi for assistance.
In a televised address, President Rajapaksa stated that Sri Lanka will have a trade deficit of $10 billion this year and that “the situation will remain for reasons beyond our control,” despite his government’s “highest feasible measures” to alleviate the issue.
Indian enterprises assist Sri Lanka
Last week, India’s NTPC agreed to build a solar facility in Sampur, in the eastern province of Trincomalee, while the Adani company agreed to build a wind/solar project in the Mannar and Ponneryn areas of northern Sri Lanka. Ceylong Petroleum and Indian Oil subsidiary Lanka India Oil Corporation have agreed to collaborate on the Trincomalee Oil Tank Farm development.In the northern Jaffna peninsula, Delhi is also pushing for a joint development of the Palaly airport and Kankesanthurai harbour.
Published By : VATSAL KOTHA
Edited By : KHUSHI THAKUR
