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India comes in to rescue Sri Lanka from debt restructuring tangle

With Colombo facing an unprecedented external debt restructuring process with foreign creditors amidst acute shortages of follar funds, India has given its assurance to the International Monetary Fund (IMF) in writing to support Sri Lanka in its task, Reuter news agency reported.

The Indian government has so far extended US $4 billion to keep the country’s accounts afloat and now it has also vocally supported Colombo’s efforts for an IMF bailout package of US$2.9 billion and restructuring of its debt.

The unprecedented humanitarian and financial aid provided by India on short notice showcases the country’s unique position in terms of its proximity to Sri Lanka and its capacity as well as capability to extend aid at a strategic level.

India has told the International Monetary Fund that it strongly supports Sri Lanka’s debt restructuring plan as the island nation seeks a $2.9 billion loan from the global lender, according to a letter seen by Reuters.

“We hereby confirm our strong support for Sri Lanka’s prospective (loan) program and commit to supporting Sri Lanka with financing/debt relief consistent with restoring Sri Lanka’s public debt sustainability,” Indian finance ministry official Rajat Kumar Mishra told the IMF chief in a letter dated Jan. 16.

Sri Lanka requires the backing of China and India – its biggest bilateral lenders – to reach a final agreement with the IMF on the $2.9 billion loan that is essential to help the country emerge from its worst financial crisis in seven decades.

All the assistance provided by India may well reap goodwill in Sri Lanka, but India’s long-term interests will be better served by weaving the geostrategic characteristics of the region into its Sri Lanka policy.

The maritime geography of the island nation provides immense potential in solidifying maritime linkages through capacity and capability building in the arena of maritime connectivity and security.

“The financing/debt relief provided by Export-Import Bank of India will be consistent with restoring debt sustainability under the IMF-supported program,” the official said.

Sri Lanka has to secure prior financing assurances from creditors, put its heavy debt burden on a sustainable path and boost public revenue before the global lender will disburse the funds, the IMF has said.

The island nation is confident of finalizing support from the IMF in the first quarter of 2023 .Sri Lanka owes India around $1 billion that will come under the debt restructuring plan, a source familiar with the matter told Reuters earlier this week.

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