Battling a major economic crisis, Sri Lanka raises the need for bridge financing with India.

Battling a major economic crisis, Sri Lanka raises the need for bridge financing with India.

Sri Lanka, reeling under its worst economic crisis since independence and hit by political turmoil, has asked India for bridging finance until the economic adjustment program with the International Monetary Fund (IMF) can be negotiated and finalized.

 Sri Lankan High Commissioner, Milinda Moragoda met with India’s Finance Minister Nirmala Sitharaman on Friday to discuss the prospect of exceeding India’s financial support to the island country to help it deal with its terrible economic crisis. According to the Sri Lankan High Commission, Moragoda emphasized that Sri Lanka would need “bridging money” until the IMF’s economic adjustment package could be agreed upon and finalized.

“In this case, the ministry and the High Commissioner looked at the prospect of boosting and restructuring India’s assistance in the form of credits for important commodities and gasoline, and balance-of-payment support,” the statement said. The high commissioner and India’s finance minister assessed the current situation of economic relations and discussed further steps.

“High Commissioner Moragoda commended Minister Sitharaman for India’s continued help to Sri Lanka in the form of credit for vital items and gasoline, and balance – of – payments support,” the mission stated. He appreciated her raising the case of Sri Lanka with the IMF, other global companies, and bilateral development partners on the sidelines of the IMF Spring Meetings in April in Washington, DC.

Moragoda gave Sitharaman an update on the present situation in Sri Lanka. The meeting took place against the backdrop of big demonstrations in Sri Lanka about the country’s dire economic situation.

During a discussion, Moragoda told Sitharaman that Sri Lanka would need bridging funding until an economic adjustment product with the International Monetary Fund (IMF) could be discussed and finalized.

According to a statement from the Sri Lankan high commission, “in this sense, the minister and the high commissioner discovered the possibility of increasing and restructuring- structuring the help that was offered by India in the form of credits for important goods and fuel, and the balance of payment support.”

The two sides agreed to continue the present official-level system for conducting India-Sri Lanka economic talks. India has provided Sri Lanka with nearly $3 billion in economic aid since the start of the year, including the lines of credit for purchasing fuel and food, a currency swap, and deferred loan repayment.

During the meeting, Sitharaman and Moragoda reviewed the current situation of economic cooperation and the next steps. This was a follow-up to their mid-April meeting. Moragoda praised Sitharaman for India’s continued aid to Sri Lanka in the form of credit for important commodities and gasoline, and balance of different payments support.

He praised her for raising Sri Lanka’s cause on the sidelines of the IMF spring meetings in April in Washington, specifically with the IMF, other international institutions, and bilateral development agencies. Moragoda informed the finance minister, Sitharaman of recent events in Sri Lanka.

Sri Lanka has looked to both India and China for bridge financing in order to get through the immediate problems until a rescue with the IMF can be agreed upon. The Indian and Japanese prime ministers reviewed the circumstances in Sri Lanka during their discussion on the sidelines of the Quad Summit in Tokyo on May 24, according to a statement from Japan’s foreign ministry. They agreed to collaborate in the face of the economic downturn.

Anantha Nageswaran, India’s chief economic advisor, who heads the Indian side in official discussions, and senior Sri Lankan High Commission officials attended Friday’s meeting.

Sri Lanka will need nearly $3 billion in foreign aid over the next six months to help restore basic supplies, like fuel and medicines, in order to manage a serious economic crisis, the country’s finance minister told reporters on Saturday.

Long-term power outages have devastated the island country of 22 million people, causing shortages of drugs, fuel, and other major necessities, provoking demonstrators to go to the streets, and placing President Gotabaya Rajapaksa under increasing strain.

Sabry explained, “The major goal is not to go for a hard default.” “We are aware of the ramifications of a severe default.”Sri Lanka’s gross debt servicing is expected to be $7 billion this year, according to J.P. Morgan analysts, with the budget deficit expected to be approximately $3 billion.

At the end of March, the government had $12.55 billion in prestigious global sovereign bonds and $1.93 billion in foreign reserves, according to central bank data. Anti-government rallies have raged for days across the island, with at least one becoming violent in Colombo, the country’s commercial hub, hurting the rich tourism industry that has been wrecked by the COVID-19 outbreak.

 “We recognize your right to protest, but no violence,” Sabry added, adding that violence is unproductive. “Our tourism, which was rebounding brilliantly in February with 140,000 visitors, has been majorly harmed from the demonstration.

Sabry said he would head a Sri Lankan delegation to Washington on April 18 to begin talks with the IMF and that legal and financial consultants would be chosen in 21 days to assist the government in renegotiating its international debt.

“The first thing that happens when we go to them is that there is a sense of confidence across the world monetary world that we are serious,” he said. “We are open and willing to participate,” said the group.

To curb rocketing inflation and stabilize the economy, a new central bank governor motivated the interest rates by an extraordinary 700 basis points on Friday. Sri Lankan officials would contact rating agencies, according to Sabry, because the government attempts to reclaim access to international capital markets after being barred since 2020 owing to multiple rating downgrades.

Sri Lanka would seek a $500 million credit line from India for petroleum, Sabry added, which would cover around five weeks’ worth of needs. The government will seek help from the Asian Development Bank, the World Bank, and other different partners like China, the United States, the United Kingdom, and Middle Eastern countries.

 Sabry dressed casually in a blue T-shirt and trousers, said, “We understand where we are, and the only thing we can do now is fight back.” “We don’t have an option.” China is now negotiating a $1.5 billion credit line, a $1 billion syndicated loan, and a debt restructuring appeal made by Sri Lanka’s president in January. Hopefully, we’ll be able to gain some relief which would help keep the Sri Lankan population and the country afloat until larger infusions arrive.