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Sri Lanka wants India to play ‘guarantor’, urge its partners to offer financial help to Colombo

Rajapaksa govt, battling an unprecedented economic crisis, has also sought India's help in extending some of the previous lines of credit till Colombo is able to negotiate a financial package with IMF.

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New Delhi: Sri Lanka has asked India if it can reach out to some of its bilateral and multilateral partners like the US, Japan, Australia, and ASEAN, and play “guarantor” to seek financial help for Colombo, ThePrint has learnt.

The Rajapaksa government, which is battling an unprecedented economic crisis, has also sought New Delhi’s help in extending some of the previous lines of credit by way of “bridge financing” till the time Colombo is able to negotiate a financial package with the International Monetary Fund (IMF), top-level sources told ThePrint.

According to the sources, Sri Lanka will soon be running out of the $500 million credit line by the end of April, after India gives 120,000 tonnes of diesel and 35,000 tonnes of petrol, the sources said.

The Sri Lankan government believes that, if it were to reach out, the international community may not act, a source said. However, the source added, the international community would be more willing to extend financial help if India, as the biggest power in South Asia, were to do reach out to them and also act as a “guarantor” for loans to the island nation.

Sources also said Sri Lanka is now in the process of undertaking a massive debt restructuring exercise in order to be able to present its case in front of the IMF, which may roll out a bailout package for the island nation, but with riders.

As a result, Sri Lanka has asked India to continue with bridge financing till the time the IMF programme is in place, the source said.

Bridge financing is a type of short-term loan given to borrowers for managing immediate needs under a stipulated period till a bigger loan is in place.

India was the first country to support Sri Lanka in this manner to secure bridge financing.

Sri Lanka has sought a $4 billion package from the IMF to tide over the economic crisis, according to their new Finance Minister Ali Sabry.

In an interview with Bloomberg Television, Sabry said his country has sought bridge financing options from China as well.

Also Read: Drink, gamble, plan the exit: How Sri Lankan elites in Colombo are handling economic crisis

Another financial package

India, said another source, is planning to draw up another financial package for Sri Lanka by way of currency swap arrangements and credit lines. Both governments are constantly in touch with each other, the source added.

This was also discussed during a meeting between Finance Minister Nirmala Sitharaman and Sri Lankan High Commissioner to India Milinda Moragoda.

New Delhi has already offered financial assistance to the tune of around $2.5 billion to Sri Lanka.

During his meeting with Sitharaman, the Sri Lankan envoy asked if New Delhi could “enhance and restructure” some of the assistance already provided by India in the form of credits for essential commodities and fuel as well as balance of payment support, said a statement issued by the High Commission of Sri Lanka to India.

Earlier this week, India also supplied 11,000 MT of rice to Sri Lanka under a concessional credit line of $1 billion. With this, a total of 16,000 MT rice — out of 40,000 MT to be imported by Sri Lanka’s State Trading Corporation from India — stood delivered.

India and Sri Lanka are now also holding discussions to establish a cooperation framework and to monitor the progress of economic cooperation between the two countries in the present context.

Sri Lanka’s Presidential Advisory Group on Multilateral Engagement and Debt Sustainability, governor of the Central Bank, and the secretary to the Treasury are engaged in these discussions with the Chief Economic Adviser of the government and the secretary (economic affairs) of the Ministry of Finance.

The high commissions of the two countries in each other’s capitals are also participating in these discussions.

Finance Minister Sitharaman is expected to meet Sri Lanka’s Finance Minister Sabry next week in Washington DC on the sidelines of the annual IMF meetings.

(Edited by Uttara Ramaswamy)

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