After meeting Prime Minister Narendra Modi on Wednesday in New Delhi, Sri Lanka’s Finance Minister, Basil Rajapaksa, is expected to meet his Indian counterpart, Nirmala Sitharaman, this week to discuss the USD 1 billion loan that the Indian government agreed to provide, as well as the road map for how the funds will be utilised.
According to the Policy Research Group, India has already provided a loan of USD 500 million for fuel purchases and a USD 400 million currency swap under the South Asian Association for Regional Cooperation (SAARC) facility. In addition to that, the government of India has provided a $500 million loan deferment for settlement to the Asian Clearing Union (ACU), in a move sought to help the island nation witnessing an exceptional economic crisis.
According to the Ministry of External Affairs in its press release, Rajapaksa briefed Prime Minister Modi on Wednesday, on initiatives being taken by both governments to increase bilateral economic collaboration and conveyed his gratitude for the support extended by India to the Sri Lankan economy. Prime Minister Modi took to Twitter and shared pictures of his meeting with Rajapaksa.
Had a good meeting with Sri Lanka’s Finance Minister @RealBRajapaksa. Glad to see our economic partnership strengthen and investments from India grow. pic.twitter.com/HxXbs65LQy — Narendra Modi (@narendramodi) March 16, 2022
Finance Minister Rajapaksa noted the deepening of people-to-people relations between both countries, including in the cultural sphere. Prime Minister pointed to the potential for increasing tourist flows, including through the joint promotion of Buddhist and Ramayan tourism circuits.
Additional USD 1 billion aid to Sri Lanka
Basil Rajapaksa’s meeting comes following Sri Lanka’s worst economic crisis. During his previous visit to New Delhi last year, Rajapaksa negotiated $1 billion in financial assistance from the Indian government. The financial aid has not been released yet. His meeting with FM Sitharaman is largely likely to finalise a $ 1 billion emergency financial aid package. The Ministry of External Affairs stated that India has stepped up and pledged a whopping USD 2.415 billion to the island nation (of which $1 billion is yet to be released) to help overcome dire financial constraints caused by external debt payments and a lack of US dollars in the country for business, the Ministry of External Affairs stated.
Sri Lanka’s economic crisis
Sri Lanka is experiencing a severe dollar deficit, which economists believe might lead to a default on external debt and food scarcity in the island nation’s import-dependent economy. In 2022, Colombo would have to service more than $7 billion in debt, including bond repayments of $500 million in January and $1 billion in July.
Amidst fears of a “debt trap”, Sri Lanka is shifting away from China and getting close to India over the failure of Colombo to pay back Chinese loans worth USD 4.5 billion. According to the Policy Research Group, whoever decides to assist the island country will work together to supply essential commodities and provide economic opportunities on their island.