Sri Lanka’s recovery | the significance of India’s support

General Studies Paper 2

Context: 

• Sri Lankan President announced that the country had cleared the last hurdles to be approved for a $2.9 billion bailout from the IMF.
• Background: The country has been reeling from the covid crisis, economic mismanagement by the Rajapakse regime, mounting debts → soaring inflation → GDP/ Exports collapse → Currency collapse.

What the IMF bailout would mean for Sri Lanka?

• Brings a lot of creditworthiness to the entire system and confidence.
• A lot of other agencies like the World Bank, AIIB, and ADB, have lined up funds to come in.
• Debt becomes more sustainable → access to the capital market → stabilizing the economy.

How India supported its neighbor?

• Contrary to China, India’s support has come unconditionally, and more promptly.
• India’s support to Sri Lanka (worth a combined $4 bn) includes –
  • Shipments of grain, fuel, essentials, medicines
  • Credit lines
  • Debt repayment relief
  • Support at the IMF to work on the bailout package
  • Support at the G20 and BIMSTEC

How did Sri Lanka respond to India’s support?

• “India had really come to our rescue, India had provided us with a lifeline which allowed us to stay afloat during a very difficult time,” Minister of Foreign Affairs of Sri Lanka.
• In a speech on Women’s day, Sri Lankan President thanked 3 women – Nirmala Sitharaman, Janet Yellen, and Kristalina Georgieva for helping Sri Lanka.
• Sri Lanka is looking for more investments from India in IT, pharmaceuticals, the energy sector, education, etc.

Challenges ahead:

• For India:
  • The controversy over Adani projects in Sri Lanka(2 wind power plants in Mannar and Pooneryn areas of [northern] Sri Lanka, West Container Terminal at Colombo Port, etc).
  • The opposition had raised issues over the manner of choosing the company.
• For Sri Lanka:How can Sri Lanka balance its ties with China and India?
  • Sri Lanka has beena very close friend of India and doesn’t want to hurt India’s security concerns.
  • Despite all the problems China is also India’s biggest [trading] partner.
  • Similarly, Sri Lanka also wants to work with Indians and the Chinese, and the rest.

Conclusion:

Sri Lankan crisis and reversal is a good example for the region – it is about being more sensitive to a neighbor’s needs rather than outspending rivals.