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EAM Jaishankar visits Sri Lanka with stronger ties, China in focus

External affairs minister S Jaishankar (HT_PRINT)Premium
External affairs minister S Jaishankar (HT_PRINT)

India's foreign minister arrives in Colombo on Thursday following his country's backing of Sri Lanka for a $2.9 billion International Monetary Fund (IMF) loan, leaving China as the island's last remaining major creditor which has yet to agree to the debt restructuring plan

India's Foreign Minister S Jaishankar arrived in Colombo on Thursday, following India's support for Sri Lanka's $2.9 billion International Monetary Fund (IMF) loan. India has informed the IMF that it supports Sri Lanka's debt restructuring plan, as Colombo owes around $1 billion to India.

India's support for the loan leaves China as the last major creditor that has yet to agree to the debt restructuring plan for Sri Lanka. India's visit is expected to further strengthen the relationship between the two countries, and may also include discussions on trade, investment and regional security.

However, Sri Lanka needs the support of both China and India, its two largest bilateral lenders, to strike a final agreement with the IMF on the loan that is necessary to assist the nation of over 22 million people recover from its worst financial crisis in seven decades.

Minister Subrahmanyam Jaishankar will aim to deepen India's ties with its indebted neighbour and sign many important transactions during his two-day tour, which will be his third to Sri Lanka since 2021.

During Jaishankar's visit, two sources at Sri Lanka's power and energy ministry said the two nations are also anticipated to sign a Memorandum of Understanding for a renewable energy project covering three islands in Sri Lanka's north.

The project stoked controversy last year as it was initially awarded to a Chinese company before India stepped in to secure them.

India's Foreign Minister, Subrahmanyam Jaishankar, is currently on a visit to Sri Lanka, where he will meet with Sri Lanka's President, Prime Minister, and Foreign Minister. The main focus of his visit is to strengthen the relationship between the two countries, and to discuss trade, investment, and regional security.

The visit comes after India stepped in to secure the East Container Terminal (ECT) project, which had been initially awarded to a Chinese company, causing controversy last year. The ECT project is considered strategically important as it is located near the main shipping lanes connecting Asia and Europe.

Sri Lanka has significant debt to China, with Chinese lenders holding $7.4 billion, which is nearly a fifth of its public external debt, by the end of last year. China is Sri Lanka's largest bilateral lender.

In addition to supporting Sri Lanka's debt restructuring plan, India has provided Sri Lanka with about $4 billion in rapid assistance between January and July last year, including credit lines, a currency swap arrangement, and deferred import payments.

With over $5 billion in bilateral commerce between them in 2021, the two Asian nations, who have fought it out for dominance over Sri Lanka for decades, are also the island nation's main trading partners.

Sanjeewa Fernando head of research at CT CLSA Securities said, "China's assurances are the only thing that is pending. We were expecting India to give financing assurances and now that they have there is no value in China delaying giving assurances. We expect that China will also give assurances soon. China delaying here will not get them any benefits from the international community."

Japan is one of Sri Lanka's significant bilateral lenders, and it is also a member of the Paris Club, an informal group of official creditors who provide debt relief to developing countries.

Japan has expressed support for Sri Lanka's debt restructuring plan, along with other Paris Club members. The United States also welcomed India's support for Sri Lanka's prospective loan from the International Monetary Fund (IMF).

The US sees India's support as a positive step towards addressing Sri Lanka's debt challenges and promoting economic stability in the region. This is also in line with US policy of supporting Sri Lanka's economic development and promoting regional stability through its Indo-Pacific strategy.

"The U.S. stands ready to assist Sri Lanka to unlock IMF assistance when all creditors agree to fair and equitable treatment," Julie Chung, the U.S. ambassador to Sri Lanka, said in a tweet on Thursday.

(With inputs from Reuters)

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