India has surpassed China to become the top lender to Sri Lanka, as the former came to the rescue when Sri Lanka started experiencing some acute shortage of foreign currency from the beginning of the year which reached a breaking point in March causing a complete collapse of the country’s economy.
Based on the data available on the disbursement of funds in the four months through April 30, India came on top, extending US$ 376.9 million worth credit compared to a paltry US$ 67.9 million extended by China.
However, this didn’t include the full package of foreign assistance from India, which approximated to US$ 3.5 billion through June this year by way of multiple credit lines, term loans and deferred loans.
India emerged as the first responder under Prime Minister Narendra Modi’s neighbourhood first policy when Sri Lanka was ditched by all other bilateral partners for funding support to ride out the dollar crunch which became more pronounced since the beginning of the year due to a confluence of external and internal factors.
As part of its US$ 3.5 billion package of assistance, in the four months through April, the two countries signed agreements for US$ 1.5 billion worth export credit facilities.
A US$ 500 million short term credit line was agreed on February 2, 2022 for two years, with a grace period of one year at the new benchmark rates for 6 months Secured Overnight Financing Rate (SOFR) plus 1.5 percent.
Another US$ 1.0 billion was agreed on March 17, 2022 for the importation of essential commodities for 3 months SOFR plus 1.6 percent payable in three years.
When the final credit line for fuel with India came to an end in mid June, Sri Lanka’s economy came to an abrupt halt causing widespread protests which culminated on July 09 which ended up chasing away the country’s embattled President Gotabaya Rajapaksa.
Dr. Ganeshan Wignaraja, a Senior Fellow at National University of Singapore speaking at a recent forum suggested that India could go bigger in bailing out Sri Lanka by giving leadership to the proposed donor summit with the rest of the bilateral and multilateral partners to provide up to US$ 25 billion in fresh funding in the next three years.
After India, Asian Development Bank (ADB) came in as the second largest lender with US$ 359.6 million being disbursed in the first four months, followed by the World Bank with US$ 67.3 million.
Despite wide expectations, China’s unwillingness or the reluctance to come to the rescue of Sri Lanka when it needed the most raised many eyebrows. However, on Friday, Palitha Kohona, Sri Lanka’s Ambassador to China told Bloomberg News that the request for up to US$ 4.0 billion worth aid from the world’s second biggest economy and Sri Lanka’s largest bilateral funding partner until recently could come at some point.
Despite the severe hardships faced by people with lack of fuel, gas and many other commodities, China hasn’t also unlocked its US$ 1.5 billion equivalent Yuan denominated swap line with Sri Lanka’s Central Bank for use.
Having exhausted all its options when Sri Lanka turned to the International Monetary Fund for a bail out in April, as China initially baulked at the idea.
In the first four months, Sri Lanka took the receipt of foreign loans to the total value of US$ 968.1 million and US$ 0.7 million in grants.