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There is a crucial economic crisis happening in Sri Lanka nowadays. The country’s enormous debt load, the pandemic and, most recently, Russian-Ukrainian War have made them stuck in a crisis. The central bank is printing rupees and hoarding dollars, sending inflation to a record high of 17.5 percent in February. The finance minister is begging neighbors for credit lines to buy diesel fuel and milk powder. In a barter arrangement, the central bank is paying for Iranian oil with tea leaves. For months, the government of President Gotabaya Rajapaksa has rationed power. Sections of the capital, Colombo, go dark suddenly, city streets becoming as inky black as the Indian Ocean beside them.
Sri Lanka is beset by financial troubles and is experiencing its greatest economic crisis in recent memory, with shortages of medication, petrol, fertilizer, and milk. Power outages are occurring on a daily basis and might persist for many hours.
Infrastructure projects that were financed with Chinese loans but are not profitable are contributing to the debt issue. Sri Lanka’s foreign reserves are decreasing, and the country faces a $7 billion debt repayment this year.
While Sri Lanka was dealing with many problems, India has become pioneer to help Sri Lanka. On March 29, 2022, India and Sri Lanka struck a pact to build hybrid power plants on northern Sri Lankan islands, a deal considered as a strategic win in India’s struggle with China for influence in the Indian Ocean. The signing was witnessed by India’s External Affairs Minister Subrahmanyam Jaishankar and Sri Lankan Foreign Minister Gamini Peiris, according to the Indian embassy.
New Delhi had previously objected to Chinese projects in the area, citing security concerns about the projects’ proximity to the south Indian coast. Now, India will build hybrid power plants in three islands off the coast of Jaffna, effectively replacing the Chinese venture that Colombo approved last year.
The project’s MoU was one of the agreements inked late Monday at a meeting between visiting External Affairs Minister (EAM) S. Jaishankar and his Sri Lankan colleague G.L. Peiris. After recent agreements for the National Thermal Power Corporation’s solar venture in eastern Sampur town and the Adani Group’s renewable energy projects in Mannar and Pooneryn in the north, this is the third Indian energy project coming up in Sri Lanka’s north and east.
On March 17th, India announced a $1 billion credit line for Sri Lanka to purchase food, medicines, and other necessities. Sri Lanka received a $500 million line of credit from India last month to assist it purchase petroleum supplies. But, strangely, one of Colombo’s closest allies, China, has exacerbated the country’s troubles and shown to be less reliable than expected. Over the last few years, Sri Lanka has borrowed from China to fund its development projects. Sri Lanka owed China $5 billion before to the outbreak, accounting for 10% of the country’s external debt, which is dominated by government bonds. In the face of the current economic crisis, President Rajapaksa has requested that China renegotiate its debt for the country.
As the Indian foreign minister began negotiations with the government of its neighbor, today, Sri Lanka has requested an extra credit line of $1 billion from India to import basics during its worst economic crisis in decades, according to Reuters, citing two sources.
India also signed agreements on a maritime rescue coordination center and a fisheries project in Sri Lanka.