Although it hurts Sri Lanka’s pride to obtain loans from all and sundry, the current economic crisis has a silver lining as it proved the country has quite a few reliable friends abroad. As the Nation is faced with an unprecedented payment crisis, friends of Sri Lanka opened their purse strings proving to everybody that Sri Lanka has the goodwill of Nations rich and poor, reflecting the success of the ‘friendship with all’ foreign policy.
Top regional power India came up with loan restructuring and extending badly-needed fuel and essential items and the main economic partner China too extended assistance immediately. Furthermore, India went the extra mile by standing guarantor for the much -required IMF tranche, which could be available later this year.
Sri Lanka has also asked India to use its influence with the IMF and other multi-lateral organisations and friendly countries like the US, the EU, the UK and Japan to help Sri Lanka at this crucial moment.
After much deliberation, Sri Lanka opted to seek IMF support, after announcing a default on its US$51 billion foreign debt and raising interest rates in the lead up to negotiations with the IMF and World Bank. Finance Minister Ali Sabry, while the US met delegations of the IMF, the World Bank, US Government officials, and the Indian Finance Minister Nirmala Sitharaman, who was also in DC to attend the Spring meetings of the IMF and World Bank. Nirmala Sitharaman’s presence at the meeting gave an additional strength to Sri Lanka’s request as the Indian Minister has urged the IMF to provide Sri Lanka with assistance, as the country grapples with one of its worst economic downturns in recent times.
In an interview with Bloomberg, Minister Ali Sabry said along with the debt restructuring, Sri Lanka is looking to go forward with a proper programme with the IMF. He also disclosed that some creditors have reached out to Sri Lanka, stating the Sri Lankan delegation is willing to meet them. He further said that Sri Lanka is in the process of appointing the necessary financial and legal advisors to carry out the discussions.
Long-time economic partner China too pledged an urgent emergency humanitarian aid of US$ 31 million to Sri Lanka. This will be extended through the China International Development Cooperation Agency and the supplies include 5,000 tonnes of rice, pharmaceuticals, production materials and other essentials.
Earlier this year, India, China and Bangladesh extended loan restructuring facilities to Sri Lanka. India provided US$ 2.4 billion since the beginning of this year, by way of a currency swap, loan deferment, and credit lines for food, fuel, and medicines. Sri Lanka had also sought Indian assistance in securing bridge financing.
In March, Sri Lanka sought a new loan and buyer’s credit from China totalling $2.5 billion, apart from the $2.8 billion that Beijing extended to Colombo since the outbreak of the Covid-19 pandemic.
During the talks with Finance Minister Ali Sabry last week in Washington, IMF’s Managing Director Kristalina Georgieva assured the Sri Lankan delegation of their sincere commitment to work with Colombo, to map a pathway to assist Sri Lanka’s economic recovery. The key highlights of the discussion had premised upon the Policy actions required to be taken to address the economic challenges of Sri Lanka. IMF’s MD later tweeted, “Thank you, Minister Ali Sabry and Governor Weerasinghe for being with us in person at the Spring #IMFMeetings during these difficult times. We discussed policy actions to address economic challenges and undertook to work together towards mapping a pathway to #SriLanka’s recovery.”
The World Bank too stated its willingness to provide emergency support to Sri Lanka and protect the vulnerable people amidst the unprecedented economic crisis in the country. After his talks with Ali Sabry, World Bank Vice President for South Asia Hartwig Schafer said the World Bank is deeply concerned about the impacts of the crisis on the poor and vulnerable and stand ready to provide emergency support for essential medicines and health-related supplies, nutrition, and education. ‘Had a good meeting today with Sri Lanka’s Finance Minister Ali Sabry and CBSL Governor Weerasinghe, discussed actions to address the economic crisis, support stabilisation and recovery, and protect the vulnerable people,’ Hartwig said.
As IMF assistance will not be available immediately, the Government is trying to manage the interim time period with some bilateral arrangements. Confirming this, Foreign Minister Prof G L Peiris said he was in touch with several friendly countries. India has given 2.5 billion US dollars and a similar amount is being requested from China, Prof Peiris said.
The success of obtaining assistance from other countries and multi-lateral organisations to face the current economic and payment crises showed that the country is not isolated in the international arena. Sri Lanka’s neutral foreign policy has yielded results so far and it is essential to continue it without getting involved in regional or international power rivalries. Hence, the country will have to be extremely cautious while conducting negotiations to obtain financial and material assistance, as the adage goes, ‘there is no free lunch’.
By Sugeeswara Senadhira