India has pushed for Sri Lanka’s temporary reclassification as a low-income nation for debt restructuring, which will enable the government of Sri Lanka to get further global assistance to weather the extraordinary financial crisis it is currently experiencing.
Nirmala Sitharaman, the finance minister, solicited help for Sri Lanka during a meeting of the International Monetary Fund’s (IMF) board of governors. The Sri Lankan government has run out of funds to pay for imports, resulting in the interruption of crucial supplies.
The FM serves as an ex-officio governor on the IMF’s board of governors. India also serves as the IMF’s representative for three additional countries: Bangladesh, Sri Lanka, and Bhutan.
New Delhi has lobbied for Sri Lanka to be treated on an equal footing with other nations in critical straits, such as Ukraine, sources told ET. Sitharaman is in the United States to attend the IMF and World Bank’s Spring Meetings.
At the outbreak of the epidemic, Sri Lanka was classed as a middle-income nation. Sitharaman said that given the nature of Sri Lanka’s economy – its reliance on tourist money and the consequent decline in state revenues as a result of the epidemic – the country should be classified as a lower-income country and assisted accordingly.
At the outbreak of the pandemic, the World Bank and IMF collaborated with the G20 to establish the Debt Service Suspension Initiative (DSSI).
It aided governments in concentrating their resources in order to combat the pandemic and protect the lives and livelihoods of millions of the world’s poorest people. The project attracted 48 of the 73 qualifying nations before it ended at the end of December 2021.
Nations that are members of the World Bank’s International Development Association (IDA) and all least-developed countries as defined by the United Nations were eligible for the DSSI.
Following that, in November of last year, the G20, the World Bank, and the IMF released the Common Framework for Debt Treatment Beyond the DSSI, which aims to assist low-income countries with unsustainable debt.
Reclassification as a low-income nation might facilitate Sri Lanka’s debt restructuring. Due to Sri Lanka’s reliance on tourism, the economic blow was mostly external. Sitharaman also advocated for Sri Lanka to get short-term emergency assistance along the lines of Ukraine.
On 9 March 2022, the IMF Executive Board approved an extra $1.4 billion in finance for Ukraine under a programme known as the Rapid Financing Instrument (RFI).
The RFI is intended for situations in which a full-fledged economic reform programme is impractical. India has provided Sri Lanka with a $1 billion line of credit (LoC) to assist in procuring food, medicines, and necessary supplies, as well as a $500 million line of credit to assist in procuring petroleum products. India’s public sector oil firms supplied massive amounts of fuel to assist Sri Lanka in overcoming its chronic power crisis. 6,000 metric tons of fuel were given by the Indian Oil Corporation to assist Sri Lanka.
Edited By: Khushi Thakur
Published By: Akshaj Joshi
