Sri Lanka’s economic crisis: How India is helping to keep the island nation afloat

During its crippling financial crisis, India has emerged as Sri Lanka’s main financial backer

Sri Lanka’s economic crisis: How India is helping to keep the island nation afloat

Last week, protesters in Sri Lanka forced their way into President Gotabaya Rajapaksa’s official residence in Colombo forcing him to flee to an unknown location. Videos went viral on social media from inside the building that showed hundreds of protesters packing into rooms and corridors, while hundreds also milled around the grounds outside. The mob also set fire to the private home of Prime Minister Ranil Wickremesinghe.

A glimpse at Sri Lanka’s worst crisis

The country has been battling high-inflation, shortage of food and essentials, depleting foreign exchange reserves and a political conundrum. According to the most recent government statistics, Sri Lanka’s inflation has jumped to an all-time high of 54.6 percent in June. It was the highest inflation rate recorded ever and the sixth consecutive double-digit growth in consumer prices. In May the inflation rate was 45.3 percent while it was 33.8 percent in April. Accordingly, the Year-on-Year inflation of the food group increased to 58.0 percent in May 2022 from 45.1 percent in April 2022 and the Year-on-Year inflation of the non-food group increased to 34.2 percent in May 2022 from 23.9 percent in previous month.

The island nation’s cabinet of ministers recently decided to limit distribution of fuel to essential services until July 10. The government had already closed public schools and trains have reduced in frequency. Blackouts round the clock and deadly fights over essentials have become a norm lately.

Dial Delhi for distress

Now, during its crippling financial crisis, India has emerged as Sri Lanka’s main financial backer. Since January 2022, New Delhi has extended almost $3 billion to Colombo that has helped to keep the island country afloat. A Line of Credit (LOC) of $1 billion was given for essentials, later US$ 500 million was given for financing purchase of petroleum product such as diesel, petrol and aviation fuel, Then, in order to support the dwindling foreign reserves, a $400-million currency swap with the Reserve Bank of India was provided. New Delhi also helped Sri Lanka defer repayment of loans totaling $1 billion under the Asian Clearing Union.

In February, a consignment of 40,000 MT of fuel was supplied by Indian Oil Corporation outside the LOC facility.  In May, a ship carrying 9,000 metric tons of rice, 50 metric tons of milk powder, as well as over 25 metric tons of drugs and other pharmaceutical supplies worth 5.5 million $ was provided. Close to 400,000 MT of fuel have been delivered till date and more consignments will arrive soon.

Besides, India has also delivered essential medical supplies, food items, food grains and other essential items to the island nation in its time of crisis.

While Sri Lanka has been receiving aid from various quarters, the situation has gone from bad to worse. Country's debt-laden economy has "collapsed" and it is unable to import food, medicine, cooking gas, and other fuels.