“India had really come to our rescue, India had provided us a lifeline which allowed us to stay afloat during a very difficult time,” said Ali Sabry, Minister of Foreign Affairs of Sri Lanka.
After months of bad news, Sri Lankan President Ranil Wickremesinghe announced that Sri Lanka had cleared the last hurdles to being approved for a $2.9 billion bailout from the International Monetary Fund- the IMF. While a final decision is expected to be announced during the IMF Spring Session next month, the news is expected to boost creditor confidence in the country that has been reeling from the covid crisis, economic mismanagement by the Rajapakse regime, and mounting debts.
1. Political turmoil- Rajapaksa’s sudden exit
2. Tense standoff with military and protestors with soaring inflation
3. GDP/ Exports collapse
4 Currency collapse
5 . Debt crisis
6 India-China rivalry- including Hambantota ship incident
India support, worth a combined $4 bn:
1. Shipments of grain, fuel, essentials, medicines
2. Credit lines
3. Debt repayment relief
4. Support at the IMF to work on bailout package
5. Contrast to China, India’s support has come unconditionally, and more promptly. While India provided written assurances as required by the IMF more than a month ago, China’s assurance had held up the process, but came through this week.
6. Multilateral support: G20 and BIMSTEC
I sat down with Sri Lankan Foreign Minister MUM Ali Sabry, who was earlier the Finance Minister, for an interview and began by asking him :
How tough its been, and what India’s support has meant
“ With India, we have had very good discussions during the last two years. Of course, we have been traditionally very good friends, but during the last year or so, India had really come to our rescue, India had provided us a lifeline which allowed us to stay afloat during a very difficult time. We can now see some resurgence in our economy- inflation is down, the rupee has stabilized more tourists are coming back and more remittances are coming in. We are not out of the woods, but stabilized right now, and what we are looking at next is recovery, for which we need investment. So right now, what we are interested in with India is how to collaborate and how to integrate the Indian economy, particularly with South India, in terms of investment, people to people connection, more tourists coming in. So that’s the kind of thing is it’s a win win situation for all, Ali Sabry said
What the IMF bailout would mean for Sri Lanka:
The moment the IMF Fund comes in, it brings a lot of credit worthiness to the entire system and confidence. It’s not as if the $2.9 billion per se, given out by the IMF in two to three years time that makes a huge difference on its own. But the fact that Sri Lanka is able to engage IMF and receive the offer means a lot in terms of bringing confidence back to the situation. A lot of other agencies like World Bank, AIIB, ADB, have lined up funds to come in, and Institutes like JIICA, the Japanese agency is there. So IMF is very, very central for us to get the confidence back on track. And then probably, if we have thereafter if we have a good, understandable debt restructuring session, then our debt becomes more sustainable. And with that, we will probably have access to the capital market once again. That’s the plan. So that will now we have stabilizing the economy. We have prevented a catastrophical dive which some other countries have seen, and I think we have managed inflation pretty well from 95% now down to 50%. So that’s a good achievement comparatively what we were in last year, but for growth to take place, and for recovery to take place, confidence needs to be built and for that the IMF bailout, is very, very central for us
Let’s also get a perspective from the ground with The Hindu’s correspondent Meera Srinivasan, who had covered the protests and all that happened since very closely-
How much has changed for ordinary Sri Lankans?
Indeed. Suhasani I am outside the Presidential Secretariat, where we witnessed dramatic scenes in July last year, and it’s been a year since the pocket protest started in Sri Lanka. But at this point, the government believes things are looking up, with the IMF’s promised $2.9 billion package coming within touching distance after China recently gave financing assurances. All the same, we’re seeing a new wave of protests by unions and students who say that the cost of living is still very high and economic distress prevails. And we’ve seen that taxes have increased and utility bills have been increased threefold. And people are saying it’s very hard to make ends meet. And there is also some concern about repression and the right to protest as things get very hard for the ordinary Sri Lankan.
In a speech on Women’s day, President Wickremesinghe thanked 3 women- Nirmala Sitharaman, Janet Yellen and Kristalina Georgieva for helping Sri Lanka- notable absence of China- is there some unhappinness with the time China has taken to guarantee its support to Sri Lanka?
The President made that speech on Women’s day and interestingly Sri Lankan cartoonist have highlighted the absence of Sri Lankan women on that list because they point to women who are central to Sri Lanka’s foreign exchange earning, be it those employed in the tea estate sector or the garment factories or those employed abroad sending in remmitances That awas some interesting commentary coming in after the President’s speech. On the question of China, earlier there were concerns that it was taking longer than what Sri Lanka would have liked to obtain financing assurances especially since India and Japan part of the Paris club wrote to the IMF earlier this year. But once that has come through recently, all leaders including those in opposition have been quick to thank China and have said they look forward to having talks with China Japan and India to restructure the debts
In his interview to The Hindu, Minister Sabry said that India rescued Sri Lanka, and is looking for more investments from India. Which are the areas you expect to see the investment come in?
In the many ongoing conversations about Sri Lanka’s economic recovery. We see a lot of emphasis on FDI. As far as India is concerned whether it is bilateral government-to-government talks or in discussion with the private sector, IT, pharmaceuticals, energy sector, education have been identified as some possible areas for Indian investment and Sri Lanka says it is looking forward to welcoming such investment from India
Another issue- and possible problem that has emerged has been the controversy over Adani projects in Sri Lanka- two big ones awarded in the past few years
1. Wind Energy – $442 million project for 2 wind power plants in Mannar and Pooneryn areas of [northern] Sri Lanka expected to generate about 350 MW of power
2. WCT- a $700 million contract to build the West Container Terminal at Colombo Port, with an eventual capacity of 3.5 million units (TEUs) capacity terminal.
While the opposition had raised issues over the manner of choosing the company, which officials said was due to direct intervention from the PMO in Delhi, another issue was the dramatic drop in share value after the Hindenburg report in January.
Here’s what Minister Sabry said about the perception that Adani was picked due to New Delhi’s pressure:
“We were keen on an Indian investor to come in, so who the Indian investor was for the Indian government and the authorities to decide and choose and send it to us. And then we will have our own feasibility and fact finding, and if we are happy, we will take it. So that’s how it happens all over the world. So we are happy. And we have no complaint, so far, because they have been investing, they’re going on with the project. And they have been successful both in India and in the region. So why not? A big name like that comes in. And there are a lot of other countries and other companies could be envious of them. For us, there is absolutely nothing to worry, because it is a transparent process and a government to government kind of a project.”
How Sri Lanka can balance its ties with China to India’s satisfaction
I think it’s a complex relationship. Sri Lanka has been a very close friend of India and doesn’t want to do anything which hurts the Indian legitimate sentiments on security concerns. But in the meantime, one also needs to understand that we need to work with everybody. Despite all the problems China is also India’s biggest [trading] partner. Similarly, we also want to work with Indians and the Chinese and the West and everybody. But in the meantime, any legitimate security concerns of Indians, we will find a way to discuss with them collaborate with them and identify them. And not to repeat any thing that could be a concern. But in the meantime, we also want to ensure the freedom of movement in the Indian Ocean for everybody’s betterment.
Sri Lanka’s reversal of some of the dire trends of last year is certainly positive for the country- it is also a good example for the region...And for India that has kept its promise as a good neighbour by delivering help when it was needed, in a timely and generous manner, without standing on ceremony. Eventually, it isn’t about outspending other rivals in India’s neighbourhood including China, but being more sensitive to a neighbour’s needs.
On Sri Lanka:
1. Conundrum Of An Island: Sri Lanka’s Geopolitical Challenges by Asanga Abeyagoonasekera
2. China in Sri Lanka- 2013 by Attanayake Chulanee
3. NAVIGATING INDIA-CHINA RIVALRY: Perspectives from South Asia by C Raja Mohan and Chan Jia Hao
4. The China Factor Beijings Expanding Engagement in Sri Lanka, Maldives,Bangladesh, and Myanmar by Shantanu Roy-Chaudhury
On Economic Crisis
5. 3 DAYS at CAMP DAVID by Jeffrey E. Garten
6. Boom and Bust: A Global History of Financial Bubbles by William Quinn and John Turner
7. Why Nations Fail:The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson.
8. Fixing Failed States: A Framework for Rebuilding a Fractured World by former Afghanistan President Ashraf Ghani and Clare Lockhart
Script and Presentation: Suhasini Haidar
Production: Gayatri Menon and Reenu Cyriac