India and Sri Lanka held the first round of talks here last week on restructuring the bilateral official debt of the island nation facing economic crisis, according to an official statement on Tuesday. The discussions symbolise India's support to early conclusion and approval of a suitable IMF Programme for Sri Lanka, for which financing assurances from creditors to make Sri Lanka's debt sustainable are required, the Indian High Commission said in a statement.
Sri Lanka and the International Monetary Fund reached a preliminary agreement in early September for a loan of about USD 2.9 billion, which is contingent on the country receiving financing assurances from official creditors and negotiations with private creditors. "In response to a recent request from the Government of Sri Lanka, the High Commission of India in Colombo held the first round of discussions on September 16, 2022 in Colombo with the Government of Sri Lanka on restructuring Sri Lanka's bilateral official debt to India," the statement said.
"India will continue to remain closely engaged with relevant Sri Lankan stakeholders," it said. The Indian debt restructuring talks came ahead of a virtual meeting called by the Sri Lankan government to update all their external creditors on the deal agreed with the IMF for economic recovery to be held on September 23.
Debt restructuring adviser Clifford Chance said Sri Lanka will make an online presentation to external creditors, updating them on recent macroeconomic developments, the objectives of the IMF package and the next steps of the debt restructuring process. The IMF, while announcing their willingness to enter a staff-level agreement at the end of August, said that agreement with creditors was the key to the facility.
Sri Lanka for the first time in its history announced a sovereign default mid April before reaching out to the IMF for a possible bailout facility. By the end of 2021, Indian loans amounted to two per cent of Sri Lanka's total external debt. The Asian Development Bank with 13 per cent, China and Japan with 10 per cent each were the main creditors of the island nation. By the end of 2021, Indian loans amounted to two per cent of Sri Lanka's total external debt.
India since the beginning of 2022 has provided USD four billion worth of assistance when Sri Lanka fell into its worst economic crisis since 1948. The country of 22 million people has been battling shortages of essentials, including fuel, food and medicines, for months after its foreign exchange reserves dropped to record lows, stalling imports and stoking unprecedented public unrest.The anti-government protests forced President Gotabaya Rajapaksa to flee the country in July. He returned to Colombo earlier this month after a new government was formed under President Ranil Wickremesinghe and the anti-government protests subsided.