Sri Lanka seeks India’s help on ‘bridge finance’ while IMF deal is worked out

Colombo has reached out to Delhi and Beijing for $3 billion required in the interim period

Ahead of the World Bank(WB) and the International Monetary Fund (IMF) Spring meetings in Washington next week, Sri Lanka is seeking India’s assistance in garnering at least $3 billion in “bridging finance” from the international community. In a meeting with Finance Minister Nirmala Sitharaman on Wednesday, Sri Lanka’s High Commissioner to India Milinda Moragoda thanked India for its provision of $2.4 billion in credit lines for food, fuel and medicines, as well as a debt waiver for the first quarter.

“High Commissioner Moragoda and Minister Sitharaman discussed how India could assist Sri Lanka in garnering international support to secure bridging finance and for the economic adjustment programme itself, through both bilateral and multilateral partners,” the Sri Lankan High Commission said, adding that they “explored the possibility of enhancing and restructuring 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”. The statement noted that Ms. Sitharaman had expressed concern over the “humanitarian cost of the economic crisis and said India would stand by Sri Lanka to overcome its challenges”.

Mr. Moragoda said India was the first in providing the island nation assistance in these “challenging times”. In the past two weeks, protests against the Rajapaksa government have spread across the country, as inflation levels soared and the currency reserves have plummeted.

India has already sent several shipments of fuel and wheat provided for under two lines of credit extended by New Delhi in January, that total up to $1.5 billion. The Reserve Bank also cleared a currency swap arrangement of $400 million and the government agreed to a long–pending request to defer Sri Lanka’s debt repayment for the first quarter. According to an official, Sri Lanka has requested a further period of debt moratorium, which New Delhi is considering, but has not indicated a decision yet.

Mr. Moragoda briefed Ms. Sitharaman about the Sri Lankan decision to default on its external debt of $51 billion announced on Tuesday, while it works out its economic situation with the IMF next week. Both Ms. Sitharaman and Sri Lankan Finance Minister Ali Sabry willvisit Washington and are expected to hold a meeting on the sidelines of the Spring meetings.

Mr. Sabry told Reuters last week that Sri Lanka is seeking at least $3 billion as bridging finance for the next few months, during the time the IMF and the WB discuss restructuring the debt and offering a new package of support for the island. While India is considering a request for further financial support and a possible further $500 million credit line for fuel, Sri Lankan Ambassador to China has said Sri Lanka is seeking to borrow about $1 billion from Beijing as well, so as to service its debt to Chinese companies, and a $1.5 billion Line of Credit to purchase goods including textiles, which are needed for the garment export industry.

Mr. Moragoda also went over the latest discussions on economic cooperation being overseen by teams on both sides, including the Sri Lankan Presidential Advisory Group on Multilateral Engagement and Debt Sustainability, the Governor of the Central Bank and the Secretary to the Treasury, with Indian Chief Economic Advisor V. Anantha Nageswaran and Secretary (Economic Affairs) Ajay Seth.