The Indian embassy in Colombo said in a tweet on Thursday that High Commissioner Gopal Baglay visited Central Bank Governor Ajith Nivard Cabraal and reiterated "India's strong support to Sri Lanka" in the wake of the Reserve Bank of India offering $900 million in facilities during the previous week.
Mr. Cabral tweeted, "Had a wonderful conversation with Indian High Commissioner to #SriLanka HE Gopal Baglay at my office this morning where he confirmed the #SAARC #SWAP by RBI and other types of bilateral collaboration."
India's help comes in response to a request made by Sri Lanka during Finance Minister Basil Rajapaksa's December visit to New Delhi for emergency financial assistance, including Lines of Credit for importing necessities and a currency exchange to replenish Sri Lanka's dwindling foreign reserves. Sri Lanka is facing a serious dollar crisis, which analysts fear may lead to a default on foreign debt and a food scarcity in the island nation's import-dependent economy. In 2022, Colombo must cover more than $7 billion in debt, including bond repayments of $500 million in January and $1 billion in July.
The Central Bank of Sri Lanka has expressed confidence in the country's ability to repay its foreign debt. Governor Cabraal, who has ruled out an IMF bailout, said on Wednesday that Colombo is in negotiations with Beijing over a fresh loan, in addition to the $500 million loan and $1.5 billion currency exchange offered by Beijing as pandemic-time support. According to local media sources, the matter was also raised during Chinese Foreign Minister Wang Yi's recent visit to Colombo. Sri Lanka already owes China more than $5 billion, and Colombo has asked Beijing to restructure the debt in order to give some relief.
As a result of the happenings, political analysts in Sri Lanka have pitted India and China against one other in terms of giving timely help to the island nation.
In July 2020, the RBI extended a $400 million swap facility to assist Sri Lanka in dealing with the consequences of the pandemic's first wave, and then granted a three-month rollover until February 2021, when the Central Bank of Sri Lanka resolved it.
The RBI statement on Thursday includes a $500 million deferral of Sri Lanka's contribution to the ACU, a regional effort comprising the Central Banks and Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka.
Using the Trinco deal
Significantly, India's confirmation of the exchange comes only a week after the two nations announced a long-awaited deal to jointly build the strategically positioned Trincomalee oil tank farm along the island's north-eastern coast. Diplomatic sources have previously stated that any financial assistance from New Delhi to Colombo would have to come after the agreement was signed. While the RBI's aid tries to assist Sri Lanka in meeting its immediate problem, the Trincomalee project has long-term ramifications for both New Delhi's investment and its geopolitical objectives in the Indian Ocean.
"India ranks third in the world in terms of oil consumption, and it is expected that India's demand would grow by 50% by 2030." Keeping these facts in mind, we must recognize the benefits that improving the Trincomalee facility may offer to both of our nations and the bilateral relationship," said Milinda Moragoda, Sri Lanka's High Commissioner in New Delhi.
Aside from the obvious potential for storage in Trincomalee, the recent agreement provides both countries with an opportunity to elevate "transactional" ties to a more "strategic level, referring to a proposal made in the "roadmap" on bilateral ties he presented in New Delhi last year.
Mr. Moragoda emphasized the need of quickly putting in place a business plan. According to the deal, the Indian Oil Corporation subsidiary Lanka IOC would operate 14 tanks for 50 years, the Ceylon Petroleum Corporation would operate 24 tanks, and a joint venture formed by the CPC and Lanka IOC would operate 61 tanks at the 850-acre site. Each tank is projected to cost at least $100 million to refurbish. "The sooner we have a solid business model, the better this initiative will function for both nations," he explained.
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