As Sri Lanka is facing a serious financial crisis, India has stepped up and pledged a whopping USD 2.415 billion to the island nation to help overcome dire financial constraints caused by external debt payments and a lack of US dollars in the country for business.

Earlier on Saturday, External Affairs Minister S Jaishankar held a virtual meeting with the Finance Minister of Sri Lanka Basil Rajapaksa. During the meeting, Jaishankar conveyed that India has always stood with Sri Lanka, and will continue to support Sri Lanka in all possible ways for overcoming the economic and other challenges posed by the COVID-19 pandemic.

To help Sri Lanka overcome its economic challenges, India under the SAARC currency swap arrangement has made an extension of USD 400 million to Sri Lanka and provided a deferral of ACU (Asian Clearing Union) settlement of USD 515.2 million by two months.

India’s critical support to Sri Lanka is due to the ongoing fuel crisis where the country is unable to purchase due to short of US dollars in the country, the Policy Research Group (PRG) said in its report.

It further stated that in 2022, Colombo must service over USD 7 billion in outstanding debt, including bond repayments of USD 500 million in January and USD 1 billion in July.

India has been keeping a close eye on China’s activities in Sri Lanka, said the report.

In the midst of deteriorating relations with India, Finance Minister Basil Rajapaksa’s visit to New Delhi has given the relationship a boost. The Trincomalee oil tanks, the West Container Terminal, and several renewable energy projects were all offered to India, Policy Research Group reported.
Highlighting the recent visit of Chinese Foreign Minister Wang Yi to the island nation, the PRG report said that though Wang Yi, who stated during his recent talks with Sri Lanka’s top officials that no ‘third country’ should ‘interfere’ in their close ties with Sri Lanka, India has demonstrated its ability to dissect and respond to the crisis.

To further complicate matters, the Chinese Ambassador in Colombo Qi Zhenhong remarked that Jaffna is a city in Sri Lanka in the north of the island and not a city in any other country’s south, subtly referring to India, Policy Research Group reported.

The Chinese Ambassador was in Jaffna after Colombo halted three hybrid projects aimed at offering to China. The offer was rolled back after India objected vehemently to China being in the north of Sri Lanka; the Chinese presence in close proximity means a security threat to India, the report said.

“China has been Sri Lanka’s largest lender for the past decade, playing a contentious role in the island’s major development projects. China wants to tighten its grip on Sri Lanka by seizing land when the country defaults on its loans, something no other country has done before.”

On their Belt and Road initiative, China has never fallen short to send its VIPs every other month to Sri Lanka to remind that its friendship with Sri Lanka is greater than any others, Policy Research Group’s report noted.

The visit by Wang Yi, who has come to Sri Lanka four times or so, was not a routine visit. The Sri Lankan President urged Yi for assistance to restructure the debt they own China. Sri Lanka owes China over USD 5 billion.

It is still unclear whether China will grant the debt restructuring that Sri Lanka has asked for. Yi said the two sides should return to the table on a free trade agreement and it is unclear whether this condition has something to do with the debt restructuring too, the report said.

It further reported that India, which believes in a “neighbourhood first” policy, has come out in force to support Sri Lanka, and the new assistance from India is aimed at preventing China from further destabilizing the country with debts.