India is willing to commit up to another $2 billion in financial assistance to Sri Lanka while also supporting the island nation with food and fuel, five sources told Reuters, as New Delhi tries to regain ground lost to China in recent years, reported Reuters.
The agency quoted a senior government source as saying that Sri Lanka’s warning on Tuesday of defaulting on debt payments was a worry but that “we can still give them up to $2 billion in swaps and support”.
Reuters quoted another source “familiar with Sri Lanka’s thinking” that it was seeking India’s help to roll over some $2 billion in dues, such as those owed to the South Asia-focused Asian Clearing Union. The source “said the response had been positive from India,” the agency reported.
India has so far committed $1.9 billion to Sri Lanka in the form of credits for essential commodities and fuel, and also in loans and currency swaps. Union Finance Minister Nirmala Sitharaman met Sri Lanka’s High Commissioner to India Milinda Moragoda Wednesday to review the status of Indo-Lanka economic cooperation as Colombo enters negotiations with the IMF for an economic adjustment programme.
Earlier this week, Sri Lanka warned that it would temporarily default on its foreign debts amid its worst economic crisis in over 70 years. Officials said the impact of the pandemic and the Ukraine war made it "impossible" to pay its creditors.
The South Asian country has seen mass protests as it suffers food shortages, soaring prices and power cuts. It is due to start talks with the International Monetary Fund (IMF) next week on a loan programme to get its economy back on track.
The IMF had assessed Sri Lanka's debt to be unsustainable last month, the ministry noted.
"Although the government has taken extraordinary steps in an effort to remain current on all of its external indebtedness, it is now clear that this is no longer a tenable policy," it said.
"A comprehensive restructuring of these obligations will be required."
Sri Lanka's foreign reserves stood at $1.93bn at the end of March. However, it has around $4bn in foreign debt payments due this year.
The country recently named a new central bank chief and almost doubled its key interest rate to help tackle soaring prices and shortages of essential goods.
In recent weeks, demonstrators have taken to the streets of the capital Colombo as homes and businesses were hit with long power cuts.
Sri Lankans are faced with shortages and rising inflation after the country steeply devalued its currency last month ahead of talks with the IMF over a bailout.
