Saturday, May 18, 2024

India has much to gain from helping Sri Lanka

After China, the last of Sri Lanka’s major international creditors, finally agreed to restructure its bilateral debt, the International Monetary Fund (IMF) gave the island nation a $3 billion conditional loan that would allow it to access an additional $4 billion from other multilateral lenders.

The IMF has disbursed $333 million, the first tranche of the loan which is to be disbursed over four years, subject to Sri Lanka implementing the reform package it has agreed to.

India was the first bilateral creditor to agree to restructure its own loan and the Sri Lankan envoy, who met India’s finance minister Nirmala Sitharaman, highlighted this point while hoping for sustained cooperation between the two countries.

Bilateral creditors have to agree to restructure their own loans for the IMF to give a debtor nation relief money — it does not want the credit it grants to be used solely for repaying the debt of bilateral creditors. If a single country refused to restructure its loan, all other lenders would be left watching as money meant to be used to meet the debtor nation’s external financing requirements went, instead, to that single creditor. This is why China’s reluctance to restructure its loan to Sri Lanka rankled in Colombo.

This is not particularly bad news for New Delhi. Under the Rajapaksas, Sri Lanka had grown close to China – so much so that it got a major belt-and-road project, the Hambantota port, at its southern tip. It proved to be a commercial dud, as expected, and Colombo was unable to service the debt incurred for the project from the port’s revenues. It didn’t have sufficient wherewithal to service the debt from other resources either, and ended up giving the Hambantota port and 15,000 acres of land around it to China on a 99-year lease.

Sri Lanka’s economy had been badly mismanaged by successive governments, including the previous one led by Gotabaya Rajapaksa, under whom things got so bad that the people revolted, overran his palace and drove him into exile last July. India gave the country an emergency line of credit and opened rupee trade with it. This will continue to be an attractive option for the country, where foreign exchange is scarce. India is in a position to supply three different kinds of goods that are vital to Sri Lanka — fuel, food and medicines. It can also supply an increasing variety of electronics manufactured in India by global brands.

Such a vigorous trade partnership would help India reduce China’s influence over the island nation that lies just 54.8 km from its southern tip, across the Palk Strait. It would also give New Delhi more room to manoeuvre on areas of vital interest, such as the treatment accorded to Sri Lankan Tamils and, coordinating policy and action against Islamist extremists who seek to radicalise peaceful Muslim populations in South Asia.

On Easter Sunday In April 2019, three churches and three luxury hotels in Colombo were bombed by Islamic radicals, creating a communal backlash of the kind that feeds extremism. It is not in India’s interest for its southern neighbour to become a hotbed of Islamic radicalism.

Friendly relations are key to coordinating policy with the government of a neighbouring country. India will be able to deliver on another front vital not just to Sri Lanka’s wellbeing but its very survival – climate change. 

In building resilience into infrastructure, agriculture and the financing of everything at risk from climate change, as well as green technologies, India can be of significant assistance to Sri Lanka.

Sri Lankan president Ranil Wickremesinghe has a tough job on his hands right now. Unions are on the warpath, protesting against some of the reforms already implemented as part of IMF’s conditions. Taxes have been raised, fuel subsidies slashed and the exchange rate liberalised to move towards market-determined levels. 

Wickremesinghe has the turmoil of the recent past with which to warn the Sri Lankan people of the cost of clinging to unsustainable policies. India’s backing is vital for the Sri Lankan president to stand his ground and survive the present round of popular unrest.

India’s proactive help, rupee-trade opportunities, and overall strategic capacity augur well for Sri Lanka’s emergence from the current economic crisis on the back of a strong partnership with India.

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