India backs Lankan debt structuring plan

Now that India has assured it would be restructuring the past loan, Sri Lanka is relieved a lot as it can now expect fresh loans from the IMF. However, it would still need assurances from China and Japan who have also lent huge loans to the island nation.

New Delhi, Jan 19: India is all help to Sri Lanka even when China placed the country in debt trap. Now, India has extended aid worth USD 3.9 billion to help the island nation fight against the acute economic and financial crisis. With this money the government of Sri Lanka would buy medicines, cooking gas, oil and food items, etc. to meet the requirements form its citizens.

Not just the financial assistance to Sri Lanka, India has also promised for debt structuring as it has told the International Monetary Fund about the same. According to news agency Reuters India has confirmed its strong support for Sri Lanka's prospective loan program. At the same time it has committed to supporting Sri Lanka with financing.

It's pertinent to understand that India is already working on restructuring of the loan to restore Sri Lanka's public debt sustainability. Ruined by mismanagement and policy decisions that were further aggravated by the Covid pandemic, Sri Lanka is facing a huge financial crisis. The Sri Lankan Rupee is the worst performing foreign currency.

Friend in need is a friend indeed

When Sri Lanka faced the most difficult economic crisis in its entire existence, it was India that stood with them. Needless to say, the crisis-hit island nation found maximum support from India as it received massive loans. In fact, India emerged as the top lender to Sri Lanka by offering $376.9 million in loans.

India's assistance was bigger than even the Asian Development Bank (ADB) and the World Bank. Now that Sri Lanka needs more money as their economy is still not on track, they need assurance from India and other countries regarding their past loans. Once the countries give these assurances to the IMF then only the organization dispenses fresh loans.

Now that India has assured that it would be restructuring the past loan, Sri Lanka is relieved a lot as it can now expect fresh loans from the IMF. However, it would still need assurances from China and Japan who have also lent some loans to the island nation. Sri Lanka is still in a deep debt trap from China and owes quite a huge amount of money.

In fact, Sri Lanka owes about $51 billion external debt most of which is from China. Apart from China, Sri Lanka borrowed heavily from Japan, the World Bank and ADB to meet its requirements in the past. All this debt has come at interest that is difficult to pay and requires restructuring; however, for now only India has assured for the restructuring.