Backing Sri Lanka, India sends financing assurance to IMF

Backing Sri Lanka, India sends financing assurance to IMF

Subject : International Relations

Section :International Organisation

Concept :

• India sent financing assurances to the International Monetary Fund (IMF) on Monday, becoming the first of Sri Lanka’s creditors to officially back the crisis ­hit island nation’s debt restructuring programme.
• This takes Sri Lanka one step closer to getting a crucial $2.9­billion package from the IMF, made contingent on “receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors.”
• China, Japan, and India are Sri Lanka’s three largest bilateral lenders. With India getting on board, Sri Lanka’s chances of swiftly tapping IMF assistance now depend on similar assurances from Japan and China.

Sri Lanka Debt Crisis

• Sri Lanka is facing its worst economic crisis since independence from Britain in 1948, and policymakers have been grappling with multiple challenges over the past year including a shortage of dollars, runaway inflation and a steep recession.
• Sri Lanka owes India around $1 billion that will come under the debt restructuring plan.
• New Delhi also separately provided Sri Lanka with about $4 billion in rapid assistance between January and July last year, including credit lines, a currency swap arrangement and deferred import payments.

Need of The Assurances:

• New Delhi’s backing comes at a critical time for Sri Lanka as it has to put its massively indebted public finances in order to unlock a $2.9 billion IMF loan that was agreed in September.
• Sri Lanka has to secure prior financing assurances from creditors, put its heavy debt burden on a sustainable path and increase public revenue before the global lender will disburse the funds.
• The IMF has stressed the importance of joint talks involving three of Sri Lanka’s main bilateral creditors – China, Japan and India.