India has pressed for the reclassification of Sri Lanka as a lower-income country temporarily for debt restructuring, which will help the country get more multilateral help to tide over the unprecedented financial crisis it is facing.
Indian Finance Minister Nirmala Sitharaman made this comment while speaking at the meeting of the board of governors of the International Monetary Fund (IMF), reports The Economic Times.
New Delhi has pressed for treating Sri Lanka on a par with other countries facing dire emergencies, such as Ukraine, sources told ET. Sitharaman is in the US to attend the Spring Meetings of the IMF and World Bank.
Sri Lanka was classified as a middle-income country at the start of the pandemic. Sitharaman argued that given the nature of Sri Lanka's economy - dependence on income from the tourism sector, and the resultant dip in national revenues due to the pandemic - the country might be categorised as a lower-income country and helped accordingly.
At the start of the pandemic, the World Bank and the IMF worked together with the G20 countries to set up the Debt Service Suspension Initiative (DSSI).
It helped countries concentrate their resources to fight the pandemic and safeguard the lives and livelihoods of millions of the most vulnerable people. Forty-eight out of 73 eligible countries participated in the initiative before it expired at the end of December 2021. Those eligible for the DSSI included countries that are part of the World Bank's International Development Association (IDA) and all least-developed countries as defined by the United Nations.
Subsequently, in November of last year, the G20, World Bank, and IMF came out with the Common Framework for debt treatment beyond the DSSI to support even the low-income countries with unsustainable debt.
Due to Sri Lanka's dependence on the tourism sector, the shock to the country's economy was largely exogenous. Sitharaman also backed short-term emergency support for Sri Lanka on the lines of Ukraine.
On March 9, 2022, the IMF Executive Board greenlighted $1.4 billion in additional financing for Ukraine under an emergency support program known as the Rapid Financing Instrument (RFI).
The RFI is designed for cases where it is impossible to launch a full-fledged program of economic reforms. On its own India has given a $1-billion line of credit (LoC) to Sri Lanka to help procure food, medicines, and essential items and another worth $500 million to purchase petroleum products. Indian public sector oil companies released large quantities of diesel to help Sri Lanka fight its ongoing power shortage. The Indian Oil Corporation released 6,000 MT of diesel to help Sri Lanka.
