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EFSAS Commentary

India’s unfeigned and unobtrusive response to the economic crisis in Sri Lanka


The acute economic calamity that has befallen the once relatively prosperous island nation of Sri Lanka has already been documented extensively enough in earlier EFSAS publications for the need to reiterate the causes and circumstances that led to the grim situation to be rendered superfluous. As the Sri Lankan government tried frantically to draw the attention of the international community to its plight, it found that first the impact of the COVID-19 pandemic and then the invasion of Ukraine made support and assistance hard to come by. This was true as much for the Ukraine-consumed West as it was for partner countries like China, which over the last decade and a bit had benefitted substantially from lucrative projects in Sri Lanka that were as much strategic as they were economics oriented. As the economic disaster bred political unrest and protests that often degenerated into violence, a Sri Lankan government desperate to halt the seeming slide towards lawlessness and chaos found an invaluable ally in neighbouring India, which not only lived up to its role of being the regional power but did so while focusing on the best interests of the people of Sri Lanka.

India’s assistance to help the people of Sri Lanka overcome their current difficulties has been worth over $3.5 billion this year alone. It has also sent over 65,000 tonnes of fertilizers, 400,000 tonnes of fuel, and large quantities of urgently needed food and medical supplies to Colombo. Equally importantly, as Sri Lankan President Gotabaya Rajapaksa underscored in an interview with Bloomberg News earlier this week, the Indian government went out of its way to urge the International Monetary Fund (IMF) to expedite the processes that could help Sri Lanka mitigate the crisis. An IMF bailout programme is currently being worked out and is expected to be available to the island nation in the last quarter of this year. The Rajapaksa family is known in Sri Lanka and abroad as the key local partner that enabled China’s economic and strategic expansion in Sri Lanka, but despite this Gotabaya’s high praise for India’s contribution towards bringing stability in his country was accompanied by a pointed criticism of Beijing’s complete disappearance in Colombo’s gravest hour of need.

In the interview with Bloomberg News, Gotabaya claimed that China was shifting its strategic focus to Southeast Asia and Africa, and highlighted that neither Sri Lanka nor Pakistan had received Beijing’s attention when they faced their most devastating economic crises. Saying that Beijing dislikes lending money to cover earlier debt payments, he added that he was yet to hear back on his request to President Xi Jinping for a one billion dollar loan to buy essential goods. Gotabaya opined that “China shifted their strategic focus into Southeast Asia. They see more strategic interest in the Philippines, Vietnam and Cambodia, that region, and Africa. I don’t know whether I am right or wrong, but even the focus on Pakistan has gone down. That shows that their interest here is not like earlier. Their interest has shifted to two other areas”.

Colombo and Islamabad have been among the biggest recipients of Chinese loans, rather than investments, as Beijing, in better times, lent billions of dollars in credit to allow Sri Lanka and Pakistan to build ports, power plants and other infrastructure, much of which experts have derided as being unnecessary and economically unviable. Now, with both recipient countries in the economic doldrums and with the IMF discussing non-negotiables with both nations in order to extend credit, Beijing is taking its time in reissuing a loan to Pakistan, and is responding tepidly to Colombo’s request for fresh credit. Bloomberg quoted Sri Lankan government officials as alleging that China also blocked Sri Lanka from taking money from an existing $1.5 billion credit line fearing the IMF may term this as a loan and add it to the debt stock. This, despite Gotabaya revealing he had personally written to Chinese President Xi Jinping to seek help. 

The severity of the crisis facing Sri Lanka was reflected by Prime Minister Ranil Wickremesinghe when on 7 June he told Reuters that “We have to restructure the entire economy, only establishing economic stability is not enough”. He estimated that his country would need at least $5 billion in the next six months to ensure that its citizens can maintain basic standards of living. He added that some $3.3 billion for fuel imports will also be required to alleviate the fuel crisis. In an address to Parliament, Wickremesinghe informed that he had a telephonic conversation with IMF Managing Director Kristalina Georgieva earlier this week during which he emphasized Sri Lanka’s dire need for bridging finance.

Like Gotabaya, Wickremesinghe too reserved high praise for India’s role in helping Sri Lanka stay afloat, and he also expressed frustration over China’s lack of response. He said on 8 June that the only country providing money to his crisis-hit nation for fuel was India. He said, “No country is giving us money for fuel and coal. Only India is giving. Our Indian credit line is now nearing its end. We are talking about extending it”. He had earlier asserted that ‘‘I think India has helped the most, even in non-financial ways. So we are thankful”. On China’s role, he had lamented that “No Chinese investments have been done yet. The only discussions going on with China are regarding the repayment of loans’’.

Beijing, meanwhile, appears to be peeved over the remarks of Gotabaya and Wickremesinghe, especially the suggestion that South Asian countries in financial trouble are not getting the same attention from Beijing as before because of China’s shift of strategic focus towards other regions. Reacting to Gotabaya’s comments, Chinese Foreign Ministry spokesman Zhao Lijian on 9 June sought to defend his country’s policies by claiming that “as a traditional friendly neighbour, China pays close attention to and feels for the difficulties and challenges facing Sri Lanka. We have all along provided support to Sri Lanka’s socio-economic development as long as our ability permits. As for China-Sri Lanka financial cooperation, shortly after the Sri Lankan government announced to suspend international debt payments, Chinese financial institutions reached out to the Sri Lankan side and expressed their readiness to find a proper way to handle the matured debts related to China and help Sri Lanka to overcome the current difficulties. South Asian countries, along with the other countries in our neighbouring areas, are China’s priority in its diplomacy. China attaches great importance to forging closer good neighbourly relations with its neighbours and has worked hard to this end”.

On the economic crisis, Zhao Lijian claimed that “we have noted and followed closely the financial, fiscal and international balance of payment difficulties facing the South Asian countries and other developing countries as you mentioned. These difficulties partly stem from the challenges brought by the Covid-19 pandemic. They also have a lot to do with the Russia-Ukraine conflict and the unilateral sanctions slapped by the US and other Western countries on Russia in the wake of the conflict”. He alleged that these factors had aggravated the food crisis and financial difficulties in developing countries and inflicted even more hardships on people.

Displaying an obstinate reluctance to acknowledge the adverse impact of Beijing’s debt trap diplomacy, mainly through its Belt and Road Initiative (BRI), on developing countries such as Sri Lanka, Lijian sought to convey the opposite picture when he said that “China will work with relevant countries to respond to risks and challenges and pursue high-quality Belt and Road cooperation to jointly sustain the sound momentum of security, stability, cooperation and development in our region and bring great benefits for all peoples in this region”. Lijian's claim came across as ironical, as it is no coincidence that the two largest South Asian participants in the BRI, Pakistan and Sri Lanka, are both seeking IMF bailout packages to tide over the most severe economic crises in their history.

Surprisingly, Lijian was effusive in his praise for India’s constructive role in helping Sri Lanka. He said at a media briefing that “We have taken note that the Indian government has also done a lot in this regard. We commend those efforts. China is ready to work with India and the rest of the international community to help Sri Lanka and other developing countries experiencing difficulty to pull through the hardship as early as possible”.

It is not without reason that even China, whose relationship with India has remained fraught since the bloody border clashes of 2020 and which sees India as the main impediment to its expansive designs in South Asia, seems to have acquiesced, at least for now, to the primacy of India’s regional role. India has got most things right in its handling of the Sri Lankan crisis, and the shift in public perception in Sri Lanka in favour of its closest neighbour is noticeable. As Bhavani Fonseka, a senior researcher at the Centre for Policy Alternatives in Colombo, put it, “India did lose out to China about 15 years ago but is trying hard to make a decent comeback. Ethnic minorities in Sri Lanka have always looked up to India to champion their demands for equal rights, whereas the Sinhalese majority still has a mixed perception… But I feel the last few weeks have changed this completely”. That is understandable as India, unlike China which by the end of 2019 owned a little over 10% of Sri Lanka’s outstanding foreign debt stock, has never been a major lender to Sri Lanka, but it now is slowly emerging as one of the biggest providers of aid to Sri Lanka.

That said, generosity with aid does not tell the whole story of how much India has got right in Sri Lanka this time around. The publicly articulated and demonstrated emphasis on helping the people of Sri Lanka has been much appreciated. India had stressed that it remained “fully supportive” of Sri Lanka’s “democracy, stability and economic recovery” and its outreach is “guided by the best interests of the people of Sri Lanka expressed through democratic processes”. As Professor Harsh V. Pant of the New Delhi-based think tank the Observer Research Foundation (ORF) noted, New Delhi can lend a helping hand as a responsible neighbour, but the future of Sri Lanka will be determined by the political establishment of the island nation coming to terms with its own responsibility to respond adequately to the aspirations of its people. This reality seems to have been recognized and kept in focus in New Delhi.

Even as it assists the Sri Lankan people, India, despite its unmatched influence among political actors in Sri Lanka, has wisely kept Colombo’s domestic politics largely out of the equation and has thereby sent the message across to ordinary Sri Lankans that India would not be coming in the way of the difficult questions they may wish to direct at their leaders, or indeed of the accountability they may seek from them.