India Urges IMF To Classify Sri Lanka As Low-Income Country For Purpose Of Debt Restructuring.

Why in news?

• India has urged the International Monetary Fund (IMF) and World Bank to re-classify Sri Lanka as a lower-income country and give Sri-Lanka emergency funding similar to one granted to Ukraine under the emergency support programme, Rapid Financing Instrument(RFI).
• Objective is to assist the country in debt restructuring as it will help Sri Lanka become party to the Debt Service Suspension Initiative (DSSI) and the ‘Common Framework for debt treatment beyond the DSSI’ (Common Framework).
  • The above are joint initiatives by the WB, IMF and G-20 for least-developed countries and Low Income Countries respectively to help them sustain debt challenges brought forward by the COVID-19 pandemic.
  • Debt restructuring is defined as an event in which the debtor is in financial difficulty and the creditor grants concession to debtor in accordance with a mutual agreement.
• Sovereign debt crisis occurs when a country is unable to pay its bills and country’s leaders ignore these indicators for political reasons.
• To solve the sovereign debt crisis, the IMF helps in identifying sovereign debt risks and provides policy advice, provides technical support on formulating debt management strategy and developing their local currency bond markets etc.