Lanka’s financial crisis and shortage of essential commodities: Testing time for Two Peoples

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As Sri Lanka is grappling with its current economic crisis, many in India feel that it is a testing time for Indias ‘neighbourhood first’ policy as well.

Given the deep cultural and racial linkage between the two countries since times immemorial, such an expectation is natural and genuine.

Once in a while every country faces its moment of economic crisis and India also had it in 1991.

Now when Sri Lanka, one of the closest neighbours of India and a successful democratic country, has come under pressure of a multipronged crisis, it is but natural that the people of both the countries have expectations that India plays a ‘rainmaker’ at least by ensuring that essential supplies in the country are maintained till the country negotiates assistance from multilateral agencies.

When Sri Lanka is bravely grappling with severe economic and financial crisis, people in India feel that standing in solidarity is the test of a real friend.

At a time when countries like the United Kingdom and Canada have directed their citizens to postpone their travel plans to Sri Lanka as the country is passing through severe foreign exchange crisis and shortage of essential supplies such as food, fuel and medicine, the people of India have expressed their solidarity with Colombo.

This was apparent since October 2021 when Indians rushed to Sri Lanka after the travel bans were relaxed. In fact, India became the largest source of tourist visits to the country in the month, which marked the first remarkable increase in tourism since it started declining fast in April 2021 due to Covid restrictions.

It needs to be recalled that the Sri Lanka government announced a national financial emergency on August 30, 2021 after a steep fall in the value of the country’s currency, which caused a spike in food prices amid continued twin deficits, i.e., fiscal deficit and trade deficit.

Apparently, the flood of Indian tourists might seem to be driven by geographical proximity, but deep inside is the long historical and cultural relations between the two peoples, which has stood the test of time.

Sri Lankan economy depends on tourism crucially for foreign exchange. Although the sector has started looking up, Sri Lanka still needs support for replenishing foreign exchange and procuring essential supplies. In India, a sort of a moral pressure on the part of the people has driven the government to do all that it can to help the island nation. It is about the whole gamut of ties and people to people relations that are at play.

As Covid restrictions continued, the tourism industry of the country could not gather momentum and by November 2021, Sri Lanka’s foreign exchange reserves dipped to as low as $1.6 billion, while in the next 12 months, the government and the private sector in Sri Lanka were required to repay an estimated $7.3 billion in domestic and foreign loans, including a $500 million international sovereign bond repayment in January 2022.

It was estimated that Sri Lanka would need to borrow at least $437 million for necessary payments. (The major problem facing the country now is how to manage foreign debt service of $4.8 billion that is due during February-October 2022). The country’s official reserves plummeted to $2.3 billion by February 2022.

Meanwhile, on the recommendations of the Central Bank of Sri Lanka, the country restricted imports of 367 non-essential items, including fish, footwear and wine etc. This was done with an aim to control the outgo of foreign exchange at the time of crisis and keep it only for essential imports.

At this difficult juncture, when Sri Lanka is assiduously trying to mobilise assistance from its development partners, India in line with a long and reliable partnership with the country has offered a $1 billion worth of relief package. This development follows India’s loan of $900 million to Sri Lanka in January to build up its depleted foreign reserves and for food imports.

Respecting people’s expectations, India stood as a reliable partner with Sri Lanka amid the current crisis. In the last six months, India offered Sri Lanka a $500 million oil line of credit, a currency swap arrangement worth $400 million and a deferral of $515 million under the Asian Clearance Union besides supplying over 40,000 MT fuel through Indian Oil in the month of February.

It is reassuring for Sri Lanka that India has shown unconditional support and solidarity at the time of crisis.

India has a 96 per cent favourable endorsement as a development partner among the people of Sri Lanka as surveyed by Ipsos Global Scan. But the people of the two countries expect more tangible and continued manifestations of the same.

The island nation’s Sinhala population, constituting 75 per cent of the total population, and Tamil people, constituting 25 per cent, trace their origin to the Indian sub-continent and culture. The two countries are very closely bound by history and religion — both Buddhism and Hinduism. This long-held bond between the two countries generates great expectations and the governments of the two nations should stand up to fulfil the expectations, especially fighting the crises together — both in weathering and warding it off.

There is an increasing realisation that India and Sri Lanka’s security and prosperity is entwined and cannot be seen otherwise. If Sri Lanka is fighting its economic crisis, there is a strong feeling in India that the people of Sri Lanka should not be left isolated. The government of India is under the moral pressure on behalf of the people of both the countries to do the maximum it can.

And India knows it very well. It had its first FTA with Sri Lanka. It is the largest trading partner of the country. In these testing times, both the countries need to cooperate to the best possible extent, not only to honour their great historical ties, but also to meet their historic responsibility.

In fact, it’s time that the whole of SAARC comes together to not allow one of the most beautiful countries of the region to sink under the burden of a financial crisis.

Standing together at such moments create shared histories to be never forgotten. And the people of the two countries are expecting only what they deserve.

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