India became Sri Lanka’s largest bilateral lender last year by providing nearly $4 billion in food and financial aid
Posted Date – Mon, 4/17/23 at 12:15pm
India became Sri Lanka’s largest bilateral lender last year by providing nearly $4 billion in food and financial aid
India’s timely and consistent assistance in Sri Lanka’s time of crisis transcends regional politics. While Colombo has increasingly leaned toward China over the years, New Delhi has never allowed those considerations to get in the way of relief efforts to help the island nation through an unprecedented crisis. India last year became Sri Lanka’s largest bilateral lender by providing nearly $4 billion in food and financial aid. Now New Delhi has teamed up with Japan and France to create a common platform for talks between Sri Lankan creditors to find a way to restructure the country’s external debt. This is after the announcement of $2. Last month the IMF offered a $9 billion package. These developments are crucial in helping Lanka weather the economic woes. Unable to raise external funds for a while, they resorted to deficit financing. As a result, inflation is projected to average 28.5% in 2023, while the economy is projected to shrink by 3.1%. The crisis in Colombo has been brewing for more than a decade as the country relies heavily on imports and borrowing for a slew of infrastructure projects. It highlights how reckless borrowing for large infrastructure projects such as China’s Belt and Road Initiative (BRI) can lead to dire complications. The government’s ill-advised switch to organic farming and ill-timed tax cuts have squeezed revenues, while the pandemic has dealt a fatal blow to tourism receipts and foreign remittances. As a friendly neighbor with a common bond of democracy, India has always supported the people of Sri Lanka in their quest for stability and economic recovery through democratic means.
It is in the interest of the international community to help Colombo get through this challenging phase. As the G20 chair, India is playing a bigger role in helping its crisis-hit neighbor. The island nation of 22 million is in its worst crisis since it gained independence from Britain in 1948. The magnitude of the crisis can be seen in the fact that Colombo has stopped paying its foreign debt to ensure it has enough cash reserves to cover emergencies. Supplies such as fuel, food, natural gas and medicine. Its economy has been in free fall since the onset of the Covid-19 pandemic, causing tourism revenues to stagnate. The country’s increased reliance on Chinese loans has pushed it into a debt trap. The main difficulty is that the total external debt-to-GDP ratio is 74%, which makes it very vulnerable to perceptions and ratings. One of the goals of Sri Lanka’s economic restructuring plan is to reduce its annual foreign exchange debt service to 4.5 percent of GDP by 2027 from the current 9 percent. India, which pursues a “neighborhood first policy”, must be prepared to take this path. Go the extra mile to help Sri Lanka.
