The talks symbolize India’s support for the swift conclusion and approval of an appropriate IMF program for Sri Lanka, which will require financing guarantees from creditors to make Sri Lanka’s debt sustainable, India’s High Commission said in a statement.
Sri Lanka and the International Monetary Fund reached a preliminary agreement in early September on a loan of approximately U.S. dollar 2.9 billion, subject to the country receiving financing guarantees 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 talks with the Government of Sri Lanka on the restructuring of Sri Lanka’s bilateral official debt in Colombo on September 16, 2022. to India,” the statement said.
“India will continue to be closely involved with the relevant Sri Lankan stakeholders,” it said.
Discussions on Indian debt restructuring preceded a virtual meeting convened by the government of Sri Lanka to update all of their external creditors about the deal agreed with the IMF for economic recovery on September 23.
Debt restructuring adviser Clifford Chance said Sri Lanka will give an online presentation to outside creditors, briefing them on recent macroeconomic developments, the objectives of the IMF package and the next steps of the debt restructuring process.
The IMF announced in late August that it was ready to enter into a staff-level agreement, but said creditors’ agreement was key to the facility.
Sri Lanka announced a sovereign bankruptcy for the first time in its history in mid-April before reaching out to the IMF for a possible bailout facility.
At the end of 2021, Indian loans amounted to two percent of Sri Lanka’s total external debt. The Asian Development Bank with 13 percent, China and Japan with 10 percent each were the main creditors of the island state.
India has provided $4 billion in aid since early 2022 when Sri Lanka was in its worst economic crisis since 1948.
The country of 22 million people has been short of essential necessities, including fuel, food and medicine, for months after foreign exchange reserves plunged to record lows, blocked imports and sparked 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 anti-government protests subsided.