India leads way in securing IMF bailout for Sri Lanka

The bold decisions taken by the Indian Government have helped Sri Lanka in overcoming the economic crisis and moving closer to securing a much needed International Monetary Fund (IMF) bailout.

From among Sri Lanka's major creditors, India was the very first country to officially inform the IMF that it strongly supports Sri Lanka's debt restructuring plan as the country seeks a USD 2.9 billion IMF loan.

Since the very beginning of Sri Lanka’s economic crisis, India provided unwavering assistance in the form of aid, relief, loans and credit facilities. Without prompt Indian assistance, the country would not have been able to secure funds and purchase essentials such as fuel and medicine.

In extension, India positively responded to Sri Lanka’s effort to restructure debt once the country sought the IMF bailout. This much needed assurance given to the IMF helped other creditors to follow suit.

This was commended by Sri Lanka's Foreign Affairs Minister Ali Sabry who was in New Delhi on an official visit to attend the Raisina Dialogue – 2023 early this month.

"India’s intervention was greater than that of the other countries," he said.
He said that there was a stalemate because there are two stages of the IMF programme.

“If your country is declared unsustainable with your debt, then you have to first restructure the debt, to lay the foundation for that. So for that, the most important thing is the bilateral creditors, who must give you assurances. There was a stalemate for a long period of time and then India came forward and gave the assurances the way IMF wanted, and the Paris Club followed,” he said.

Sabry said, “Your real friends are tested when bad time comes. India has stood by us, a friend in need and a friend indeed that they say. So we are grateful to India for what it has done for us.”

The Minister also said that the Indian government took bold and decisive actions by providing Sri Lanka with approximately 3.9 billion rupees in bilateral credit and accreditation. He went on to say that it was the line that gave Sri Lanka the chance to fight another day, and that it likely saved the bankrupt country from oblivion.

Sabry recalled India’s efforts to save Sri Lanka from drowning in debt, saying that India came at the very beginning.

China, Japan, and India are the three largest bilateral lenders to Sri Lanka. It took months of discussions, efforts and calls for China to agree to restructure the debt of Sri Lanka.

In a January 19 letter, the Export-Import Bank of China offered Sri Lanka a two-year moratorium on its debt. However, it was not an adequate assurance for Sri Lanka to immediately gain the IMF's approval for the critical loan.

Accordingly, in early March, Sri Lanka received fresh financial assurances from China on debt re-structuring on the parameters required by the IMF.

The IMF had also lobbied China to give revised financial assurances in line with gross financing ceilings set in a debt sustainability analysis.

Meanwhile, Sri Lanka signed a Letter of Intent covering the deal with the IMF to be submitted to its Executive Board for approval, President Ranil Wickremesinghe told Parliament on March 7.

“We expect IMF Board Approval in the third or fourth week of March,” President Wickremesinghe said.

The approval of the IMF deal will also allow the World Bank and Asian Development Bank to give loans, he said.

He said that there were signs the economy was improving, but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.

The President said that Sri Lanka has completed all prior actions that were required by the IMF.

Meanwhile, IMF Managing Director Kristalina Georgieva also welcomed the progress made by Sri Lanka in “decisive” policy actions and in obtaining financing assurances from all major creditors.

Georgieva said the IMF looks forward to presenting what will be Sri Lanka’s 17th IMF programme to the international lender’s executive board on March 20.

“The Extended Fund Facility (EFF) will support the authorities’ program of ambitious reforms, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” she said.

Meanwhile, both the IMF and US commended India for giving much needed assistance to Sri Lanka to overcome its economic crisis.

Ramin Toloui, Assistant Secretary for the Bureau of Economic and Business Affairs at the US Department of State said India has shown real leadership in offering financing assurances and the Paris Club of which the United States is a part has also offered those financing assurances that will be necessary for Sri Lanka to launch its IMF relief programme.

Earlier, during a two-day official visit to Sri Lanka in mid-January, Indian External Affairs Minister Jaishankar said, “Without waiting for others, we decided to do what we believe is right.”

"We believe they should help restore Sri Lanka's economy. We gave a financial guarantee to the IMF, which will make it easier for Sri Lanka to move forward," he said.

He further said that India has always helped for the political and economic stability of Sri Lanka.