sri lanka: Tag Sri Lanka as ‘low-income’: FM Sitharaman urges IMF

India has pressed for Sri Lanka’s reclassification as a lower-income nation briefly for debt restructuring, which is able to assist the nation get extra multilateral assist to tide over the unprecedented monetary disaster it’s going through.

Finance minister Nirmala Sitharaman, talking on the assembly of the board of governors of the Worldwide Financial Fund (IMF), sought assist for Sri Lanka.

The island nation has run out of {dollars} to pay for imports, inflicting important provides to expire.

The FM is an ex-officio governor on the board of governors of the IMF. India additionally represents three different international locations on the IMF – Bangladesh, Sri Lanka, and Bhutan.

New Delhi has pressed for treating Sri Lanka on a par with different international locations going through dire emergencies, comparable to Ukraine, sources informed ET. Sitharaman is within the US to attend the Spring Conferences of the IMF and World Financial institution.

Sri Lanka was categorized as a middle-income nation initially of the pandemic. Sitharaman argued that given the character of Sri Lanka’s financial system – dependence on earnings from the tourism sector, and the resultant dip in nationwide revenues because of the pandemic – the nation is likely to be categorised as a lower-income nation and helped accordingly.

At the beginning of the pandemic, the World Financial institution and the IMF labored along with the G20 international locations to arrange the Debt Service Suspension Initiative (DSSI).

It helped international locations focus their assets to struggle the pandemic and safeguard the lives and livelihoods of thousands and thousands of probably the most weak folks. Forty-eight out of 73 eligible international locations participated within the initiative earlier than it expired on the finish of December 2021.

These eligible for the DSSI included international locations which might be a part of the World Financial institution’s Worldwide Growth Affiliation (IDA) and all least-developed international locations as outlined by the United Nations.

Subsequently, in November of final 12 months, the G20, World Financial institution, and IMF got here out with the Frequent Framework for debt therapy past the DSSI to assist even the low-income international locations with unsustainable debt.

Reclassification as a low-income nation would ease the method of restructuring Sri Lanka’s debt.

On account of Sri Lanka’s dependence on the tourism sector, the shock to the nation’s financial system was largely exogenous. Sitharaman additionally backed short-term emergency assist for Sri Lanka on the traces of Ukraine.

On 9 March, 2022, the IMF Govt Board greenlighted $1.4 billion in extra financing for Ukraine below an emergency assist program often known as the Speedy Financing Instrument (RFI).

The RFI is designed for instances the place it’s inconceivable to launch a full-fledged program of financial reforms. By itself India has given a $1-billion line of credit score (LoC) to Sri Lanka to assist procure meals, medicines, and important gadgets and one other value $500 million to buy petroleum merchandise. Indian public sector oil firms launched massive portions of diesel to assist Sri Lanka struggle its ongoing energy scarcity. The Indian Oil Company launched 6,000 MT of diesel to assist Sri Lanka.

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