India and Sri Lanka Collaborate on Debt Treatment amid Economic Recovery Efforts

India’s Finance Minister, Nirmala Sitharaman, has reaffirmed commitment of India to collaborate with Sri Lanka on debt treatment as the island nation seeks to recover from a severe economic crisis that struck last year. During her three-day visit to Sri Lanka, Sitharaman held discussions with President Ranil Wickremesinghe, emphasizing the need for Sri Lanka to bring its major creditors, including China, India, and Japan, on board for a mutually agreeable debt treatment plan. This cooperation is essential for unlocking the second tranche of the International Monetary Fund’s (IMF) Extended Fund Facility (EFF).

On October 19, Sri Lanka reached a staff-level agreement with the IMF on economic policies, marking the first review of the 48-month EFF-supported program. However, the release of funds from the IMF will depend on Colombo reaching an agreement with its official creditors, which is considered a “critical step” in the process. Once this is achieved, Sri Lanka will gain access to $330 million in financial support.

During their discussions, Sitharaman and President Wickremesinghe also explored cooperation in various sectors, including inter-grid connectivity, aviation, power projects, and oil exploration in the northern town of Mannar. Although no new agreements were signed during the visit, certain previously discussed projects were further solidified.

One notable development during the visit was the exchange of a revised Memorandum of Understanding on a $15 million grant assistance from India to promote Buddhist ties between the two countries. Out of this amount, $10 million will be allocated for the solar electrification of religious sites.

Sri Lanka expressed gratitude to Prime Minister Narendra Modi and Finance Minister Sitharaman for India’s substantial assistance, totaling nearly $4 billion, provided during Sri Lanka’s economic crisis. This support was vital in helping Sri Lanka stabilize its economy during challenging times.

The visit also included the virtual launch of a foundation stone laying ceremony for the construction of 10,000 houses in the hill country, supported by Indian grant assistance. This project, announced during PM Modi’s 2017 visit to the central highlands, is making significant progress, with phase-III nearing completion and 3,700 houses already handed over to beneficiaries.

Additionally, the 12th round of negotiations on the Economic and Technology Cooperation Agreement (ETCA) between Sri Lanka and India took place in Colombo, marking a significant step toward strengthening the economic partnership between the two countries.

Re-reported from the article originally published in The Hindu