India on Tuesday told the International Monetary Fund (IMF) it will support Sri Lanka’s debt restructuring plan.

The source with direct knowledge of the matter said India made its pledge as the island nation races to secure a $2.9 billion bailout from the global lender.

The country of 22 million people is facing its worst economic crisis since its independence from Britain in 1948. Policymakers have also been grappling with multiple challenges over the past year, including a shortage of dollars, runaway inflation and a steep recession.

“India has written to the IMF,” the source told Reuters, asking not to be named because they are not authorised to speak to the media.

India’s finance ministry spokesperson declined to comment, while Sri Lanka’s finance ministry did not immediately respond to a request for comment.

New Delhi’s backing came at a critical time for Sri Lanka as it has to put its massively indebted public finances to unlock the IMF loan agreed upon in September.

The source said Sri Lanka owes India around $1 billion that will come under the debt restructuring plan.

New Delhi also separately provided Sri Lanka with about 4 billion dollars in rapid assistance between January and July last year, including credit lines, a currency swap arrangement and deferred import payments.

Sri Lanka’s cabinet spokesperson, Bandula Gunawardana, said, “Talks with bilateral lenders, including India and China, to restructure Sri Lanka’s debt are progressing well, and we are hopeful of finalising support from the IMF in the first quarter of 2023.”

The IMF has said Sri Lanka has to secure prior financing assurances from creditors, put its heavy debt burden on a sustainable path, and increase public revenue before the global lender will disburse the funds.

The IMF has stressed the importance of joint talks involving three of Sri Lanka’s main bilateral creditors – China, Japan and India.

Sri Lanka’s cabinet said it would cut its recurrent budget expenditure by six per cent in 2023 and had approved a proposal to delay the salaries of some public employees to manage public finances. 

(Reuters/NAN)