Sri Lanka seeks India’s help to secure bridge financing amid economic crisis

Sri Lanka has sought India's assistance in garnering international support to secure bridge financing as it enters negotiations with the International Monetary Fund (IMF) for a bailout programme to cope with the island nation's worst economic crisis in decades, according to a statement from the Sri Lankan high commission.

The issue of India's support for securing both bridge financing and the economic adjustment programme with IMF figured when Sri Lanka's high commissioner Milinda Moragoda met finance minister Nirmala Sitharaman in New Delhi on Wednesday.

On Tuesday, Sri Lanka declared it would default on its external debt pending a bailout from IMF. The move was attributed to the country's critically low foreign exchange reserves. This was the first time Sri Lanka has announced a debt default since its independence in 1948.

In addition to reviewing bilateral economic cooperation, Moragoda and Sitharaman discussed how India can assist Sri Lanka in getting international support to secure bridge financing and the IMF economic adjustment programme itself, through both bilateral and multilateral partners, said the statement from the Sri Lankan high commission.

They also explored the possibility of enhancing and restructuring some of the assistance already provided by India in the form of credits for essential commodities and fuel, as well as balance of payment support.

Moragoda and Sitharaman observed that the assistance provided by India so far "could form part of the bridging finance required by Sri Lanka until the economic adjustment programme with the IMF would be negotiated", the statement said.

"It was also observed that India was the first country to support Sri Lanka in this manner to secure bridging finance until that programme would be in place," the statement added.

Sitharaman expressed her concern over the humanitarian cost of the economic crisis and said "India would stand by Sri Lanka to overcome its challenges". Moragoda thanked her for her personal interest in supporting Sri Lanka at this difficult time.

The process of negotiating a bailout with the Washington-based IMF is expected to take at least six months, if not more. In the interim, the Sri Lankan government will have to work out a bridge financing arrangement to take care of its immediate needs.

Moragoda and Sitharaman noted that Sri Lanka's finance minister Ali Sabry and his delegation will meet the ministerial delegation from India in Washington next week on the margins of the IMF spring meetings.

The envoy also thanked Sitharaman for the assistance that India is extending to Sri Lanka in the form of credits for essential commodities and fuel, and for balance of payment support.

India has so far provided Sri Lanka financial aid worth almost $2.5 billion, including a $500-million line of credit in February for fuel purchases and another $1-billion line of credit in March for buying food, medicines and other essential items. India has provided a currency swap of $400 million under the Saarc facility and deferred the payment of $515 million to the Asian Clearing Union.

On Tuesday, 11,000 tonne rice supplied by India under the line of credit reached Colombo.

Moragoda briefed Sitharaman on the "debt standstill" announced by the Sri Lankan government and told her that Sri Lankan authorities are "seeking a consensual agreement on debt restructuring".

The discussions also focused on how India can play an expanded role in promoting accelerated growth and development in Sri Lanka in the medium term. Moragoda and Sitharaman expressed satisfaction at ongoing official discussions between the two countries to establish a cooperation framework and to monitor progress of bilateral economic cooperation in the current context.

Sri Lanka's presidential advisory group on multilateral engagement and debt sustainability, the governor of the Central Bank and the secretary to the treasury are engaged in these discussions, while India is represented by the chief economic advisor and the secretary (economic affairs) in the finance ministry. The high commissions of the two countries are also participating in the discussions.

The economic crisis in the country of 22 million people has resulted in regular blackouts and shortages of food and fuel. The government has banned the import of non-essential items to conserve foreign currency reserves. The economic crisis has also triggered public demonstrations, with protestors demanding the resignation of President Gotabaya Rajapaksa.