Sri Lanka crisis: India to provide additional $2 billion aid
India is considering enhancing its financial assistance to crisis-hit Sri Lanka in the form of credits for essential commodities and balance-of-payment support. Reportedly, India could provide up to "another $2 billion in financial assistance to Sri Lanka." The development comes after Finance Minister Nirmala Sitharaman met Sri Lanka's High Commissioner to India Milinda Moragoda on Wednesday to review the status of Indo-Lanka economic cooperation.
- India has already committed $1.9 billion to Sri Lanka so far in the form of credits for fuel and essential commodities as well as loans and currency swaps.
- India can still give Colombo up to "$2 billion in swaps and support," a senior Indian government official told Reuters.
- Through these moves, India is reportedly trying to "regain ground lost to China in recent years."
Sri Lanka is seeking India's assistance to roll over about $2 billion in dues like those that it owes to the South Asia-focused Asian Clearing Union, a Sri Lankan source told Reuters. "The response had been positive from India," the source added. Notably, Colombo is reeling from depleting foreign reserves even as it has an estimated $25 billion in foreign debt due for repayment.
On Tuesday, the Sri Lankan government said it was halting its repayment of foreign debt, including bonds and government-to-government borrowing. It added it was due to the pending completion of a loan restructuring program with the International Monetary Fund to deal with the economic crisis.
High Commissioner Moragoda and Sitharaman discussed the issue of India extending bridging finance required by Lanka until its economic adjustment program with the IMF was negotiated. They also discussed how India could assist Colombo in gathering international support for securing bridging finance. They further discussed India's possible role in promoting accelerated growth as well as development in Lanka in the medium term.
In January 2022, a $400M currency swap to Colombo was extended by India under the SAARC Framework and to defer an Asian Clearing Union settlement of $515.2 million until May 6. A new, $500M new Line of Credit was extended for importing fuel from India. A $1B credit facility was also expanded for the procurement of food, medicine, and other essential items from India.