India Vows To Back Sri Lanka's Debt Restructuring Plan, Says Two Nations Are 'Steadfast Friends'

IMF's Bailout package for Sri Lanka

Wickremesinghe during the inaugural session of the Sri Lanka Economic Summit 2022 on Monday said that it held "successful" talks with India on debt restructuring and will also begin discussions with China, as the island nation scrambles to get assurances from major bilateral creditors to close a crucial deal with the IMF.

Sri Lanka, which is trying to secure a USD 2.9 billion bridge loan from the International Monetary Fund (IMF), is also looking at financial assurances from its major creditors -- China, Japan and India -- which is the requisite for Colombo to get the bailout package.

Replying to Wickremesinghe's tweet on holding the ?"successful" talks on debt restructuring, the Indian High Commission here tweeted, "Thank you H.E President @RW_UNP. #India will continue to be a steadfast friend of #SriLanka and stand by our brethren. We are committed to strengthening the bilateral economic partnership for mutual benefit."

Sri Lanka has large debt rollover volumes (Gross Financing Need) running up to 37 per cent of GDP in 2022, which the IMF wants to bring down. The exact GFN target is not known, but other countries under restructuring have levels around 15 per cent, and some less, the EconomyNext reported.

Sri Lanka's debt burden

China, however, continues to be ambivalent about its stand on loans to Sri Lanka as it is set for talks with the IMF for debt restructuring of several recipient countries of Chinese finances, which are defaulting on their external debt. Sri Lanka, which went bankrupt earlier this year, had announced a default on over USD 51 billion in foreign loans, including that of China.

China has also announced assistance of 500 million RMB (about USD 74 million) for the supply of essential goods, but it remained silent about former Lanka president Gotabaya Rajapaksa's request to defer the loan repayment.

India has rushed about USD 4 billion in assistance in the form of line credit and other modes to help Sri Lanka this year, which has virtually declared insolvency and defaulted on all foreign loans.

In November, Sri Lanka said it held a "productive" second round of crucial talks with its bilateral creditors.

Sri Lankan economic crisis

Sri Lanka is going through its worst economic crisis since its independence in 1948, triggered by a severe paucity of foreign exchange reserves. In mid-April, Sri Lanka declared its international debt default due to the forex crisis.

The Sri Lankan government in May appointed international legal and debt advisors for debt restructuring after the country declared its international debt default for the first time in history.

Sri Lanka is nearly bankrupt and has suspended repaying its USD 51 billion foreign debt, of which it must repay USD 28 billion by 2027. A country of 22 million people, plunged into financial and political turmoil earlier this year as it faced a shortage of foreign currencies. Due to this, the country has been unable to afford key imports, including fuel, fertilisers and medicine, leading to serpentine queues.

(With inputs from PTI)