The Indian government has granted Sri Lanka an extension on a $2.6 billion debt owed to the Reserve Bank of India (RBI), preventing an imm...
The Indian government has granted Sri Lanka an extension on a $2.6 billion debt owed to the Reserve Bank of India (RBI), preventing an immediate default by the island nation. The extension includes a $2.2 billion dollar swap agreement and a $400 million Special Swap Arrangement under the South Asian Association for Regional Cooperation (SAARC) mechanism and the Asian Clearing Union (ACU).
Sri Lanka was set to repay over $1.7 billion this week as part of these arrangements, but India, recognizing the nation’s fragile economic recovery and the importance of ongoing International Monetary Fund (IMF) discussions, proactively extended the swap arrangement to support Sri Lanka’s stabilization efforts.
A diplomatic source revealed that India granted this extension without direct engagement from the Sri Lankan government, acting through diplomatic channels. The decision was unofficially communicated to Sri Lanka, with formal confirmation expected soon from New Delhi. The length of the extension is yet to be disclosed and will be clarified in the official communication.
Sri Lanka's debt to India was initially accumulated under the ACU and SAARC mechanisms, with the IMF's staff report confirming that these arrears had been converted into a $2.2 billion swap. An additional $400 million was provided by the RBI as part of a SAARC agreement, totaling $2.6 billion, which Sri Lanka is scheduled to repay between 2023 and 2026.
Earlier this year, in the lead-up to the presidential election, Sri Lanka had repaid $400 million to India and an additional $200 million towards the ACU debt. The extension granted by India is a crucial move that provides Sri Lanka with temporary relief as it navigates through its economic recovery and restructuring process under the IMF program.
This diplomatic support further cements the strong bilateral ties between India and Sri Lanka, with India continuing to play a vital role in the region’s economic stability.
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