India extends $900 mn support to Sri Lanka

India on Thursday confirmed a $400 million foreign money swap with Sri Lanka whereas deferring one other $500 million due for settlement to the Asian Clearing Union (ACU), in a transfer geared toward serving to the island nation witnessing an unprecedented financial disaster.

In a tweet on Thursday, the Indian mission in Colombo mentioned Excessive Commissioner Gopal Baglay met Central Financial institution Governor Ajith Nivard Cabraal and expressed “India’s sturdy assist to Sri Lanka” within the wake of the Reserve Financial institution of India extending services of $900 million over the past week.

“Had a wonderful dialogue with Indian Excessive Commissioner to #SriLanka HE Gopal Baglay at my workplace this morning the place he confirmed the #SAARC #SWAP by RBI and different types of bilateral cooperation,” Mr. Cabraal mentioned in a tweet.

India’s help follows a request from Sri Lanka throughout Finance Minister Basil Rajapaksa’s go to to New Delhi in December, for emergency monetary help, together with Strains of Credit score for importing necessities and a foreign money swap to spice up Sri Lanka’s draining overseas reserves. Sri Lanka is dealing with a extreme greenback crunch that economists say may result in a default on exterior debt and create a meals scarcity within the imports-reliant island nation. Colombo should service over $7 billion excellent debt in 2022, together with bond repayments of $500 million in January and $1 billion in July.

The Central Financial institution of Sri Lanka has expressed confidence about paying off the overseas debt. Ruling out an IMF bailout, Governor Cabraal on Wednesday mentioned Colombo is in talks with Beijing for a brand new mortgage, along with the $500 million mortgage and $1.5 billion foreign money swap prolonged by Beijing as pandemic-time assist. The request, in response to native media stories, was additionally mentioned throughout Chinese language International Minister Wang Yi’s go to to Colombo final week. Sri Lanka owes China over $5 billion already, and Colombo has requested Beijing to restructure it to offer some aid.

The developments have prompted political commentators in Sri Lanka to pit India and China towards one another, in offering well timed help to the island nation.

In July 2020, the RBI prolonged the same swap facility — of $400 million — to assist Sri Lanka address the impression of the primary wave of the pandemic, and later supplied a three-month roll over till February 2021, when the Central Financial institution of Sri Lanka settled it.

Thursday’s announcement on RBI help contains deferring the cost of $500 million that Sri Lanka owes to the ACU, a regional initiative with the Central Banks and Financial Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka.

‘Leveraging Trinco deal’

Considerably, India’s affirmation of the swap comes every week after the 2 international locations signed a long-pending settlement on collectively growing the strategically situated Trincomalee oil tank farm alongside the north-eastern coast of the island. Diplomatic sources had earlier indicated that any monetary assist from New Delhi to Colombo must comply with the signing of the deal. Whereas RBI’s help seeks to assist Sri Lanka meet its rapid problem, the Trincomalee venture has long-term implications each, by way of funding from New Delhi and its strategic pursuits within the Indian Ocean.

“India ranks third on this planet in oil consumption, and it’s predicted that India’s requirement will improve 50 % by the yr 2030. Preserving these realities in thoughts, we now have to understand what growing the Trincomalee facility can deliver to every of our international locations, and to the bilateral relationship,” mentioned Milinda Moragoda, Sri Lanka’s Excessive Commissioner to New Delhi.

Aside from the apparent potential for storage in Trincomalee, the latest settlement offers each international locations a possibility to raise “transactional” ties to a extra “strategic stage”, he instructed The Hindu, recalling a proposal made within the “roadmap” on bilateral ties he introduced whereas taking cost in New Delhi final yr.

A lot would rely on putting in a marketing strategy swiftly, Mr. Moragoda emphasised. As per the settlement, Indian Oil Company subsidiary Lanka IOC would function 14 tanks for 50 years, the Ceylon Petroleum Company would run 24 tanks, whereas a three way partnership arrange by the CPC with Lanka IOC would function 61 tanks within the facility spanning some 850 acres. Refurbishing every tank is predicted to price at the very least $ 100 million. “The earlier we evolve a sound marketing strategy, the higher this venture will work for each international locations,” he mentioned.

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