India emerged as the top lender to Sri Lanka in 2022, dibursing around $377 million through its worst-ever financial crisis, according to a report.
As Sri Lanka repeatedly went out of essentials such as fuels and medicines, Indian credit lines allowed the country purchase such essentials and keep the country running.
Of the total $968 million loans taken by Sri Lanka in January-April, India was at the top with $377 million, followed by Asian Development Bank (ADB) at $360 millions, according to a report by Sri Lankan think tank Verite Research. India and ADB together account for 76 per cent of total Sri Lankan loans in the four-month period.
Between 2017-21, China has been the largest bilateral lender to Sri Lanka. In 2021, China had provided $947 million of which $809 million were borrowings from the China Development Bank. The ADB was the largest multilateral lender during the same period.
However, since Sri Lanka plunged into its worst-ever financial crisis, China has gone out of the picture. The financial crisis led to skyrocketing prices of essentials such as vehicular fuel, foodstuff, cooking gas, and medicines and their massive shortages across the country. The country also ran out of thermal fuel to produce electricity, leading to long power cuts. The country could not import essentials because of foreign exchange crisis.
The financial crisis also led to a political crisis which led to intense and violent protests against Rajapaksas who were at the helm of the government at the beginning of the crisis. The protests led to the ouster of Gotabaya Rajapaksa as President and Mahinda Rajapaksa as Prime Minister.
The Indian High Commission in Sri Lanka's capital Colombo announced that India’s total credit support to Sri Lanka this year, including currency swaps, amounts to nearly $4 billion. India provided a dedicated credit line for fuel imports amounting to $700 million which ran out in late June, leaving large fuel queues at Indian Oil Company fuel retail stations. The state fuel entity was only supplying fuel to emergency services then.
Sri Lanka has recently secured a deal with the International Monetary Fund (IMF) for a $2.9 billion loan facility which is subject to Sri Lanka and its creditors agreeing to debt restructuring.
In mid-April, Sri Lanka declared its international debt default due to the forex crisis. It owes $51 billion in foreign debt, of which $28 billion must be paid by 2027.
Sri Lanka's longtime biggest lender China has been blamed in large part for the crisis in the country for its predatory landing. It has often been accused of "debt-trap" diplomacy where it lends money and traps countries in debt.
"As much as 70 per cent of the island’s infrastructure projects are constructed by China from its commercial borrowings at a higher percentage with opaqueness. China accounts for around 10 per cent of Sri Lanka’s staggering foreign debt, around $3.38 billion...China has said it will provide a US$1 billion loan to Sri Lanka, rejecting its restructuring request, where the funds will be utilised to settle previous loans from Chinese banks. The interest rate of these loans is long debated and unclear to the public, usually around 3.76 per cent compared to OECD’s 1.1 per cent," said a report by The Institute for Security and Development Policy (ISDP).
(With PTI inputs)