Editorial: A friend in need
By extending nearly $4 billion in food and financial assistance, India emerged as top bilateral lender to Sri Lanka last year
India’s timely and consistent help in Sri Lanka’s hour of crisis goes beyond regional politics. Despite Colombo’s growing slant towards China over years, New Delhi never allowed these considerations to come in the way of rescue efforts to help the island nation tide over the unprecedented crisis. By extending nearly $4 billion in food and financial assistance, India emerged as the top bilateral lender to Sri Lanka last year. Now, New Delhi has joined hands with Japan and France to set up a common platform for talks among Sri Lanka’s creditors to work out ways to restructure the country’s external debt. This follows the announcement of a $2. 9-billion package by the IMF last month. These developments are essential to help Lanka tide over economic distress. Unable to raise external finance for a while, it resorted to deficit financing. Consequently, the average inflation in 2023 is projected to be 28.5% even as the economy is expected to shrink 3.1%. Colombo’s crisis has been in the making for more than a decade due to the country’s excessive dependence on imports and borrowings for a raft of massive infrastructure projects. It highlights how unbridled borrowing for big-ticket infra projects such as those under China’s Belt and Road Initiative (BRI) can lead to terrible complications. The government’s ill-advised switch to organic agriculture and badly-timed tax cuts squeezed revenues while pandemic dealt a deadly blow to tourism revenues and foreign remittances. Being a friendly neighbour with a common bond of democracy, India has been supportive of the Sri Lankan people’s quest for stability and economic recovery through democratic means.
It is in the international community’s interest to help Colombo come through this challenging phase. As president of the G20, India has a greater role to help the crisis-stricken neighbour. The island nation of 22 million people is in the grip of the worst crisis since independence from Britain in 1948. The extent of the crisis can be gauged from the fact that Colombo had stopped external debt payments to ensure that it had enough cash reserves for emergency supplies like fuel, food, gas and medicines. Its economy has been in a free fall ever since the onset of the Covid-19 pandemic, which led to a grinding halt to tourism revenues. The country’s increased reliance on Chinese loans has pushed it into a debt trap. Its primary difficulty is that the aggregate external debt as a percentage of GDP is 74%, making it very vulnerable to perceptions and ratings. One of the aims of Lanka’s economic restructuring package is to lower its annual debt service in foreign exchange from the current 9% of GDP to 4.5% by 2027. India, which has followed the ”Neighbourhood First policy”, must be prepared to walk that extra mile to help Sri Lanka.
