COLOMBO, Sri Lanka — Sri Lanka is contemplating the potential of permitting using the Indian rupee for native transactions, because the island nation struggles to construct its depleted international reserves and to emerge from final yr’s unprecedented financial disaster.
Sri Lankan International Minister Ali Sabry mentioned Saturday the transfer to permit using its big neighbor’s foreign money would allow “vacationers and different folks from India to straight use Indian rupees right here” with out going by way of the trouble of a number of foreign money conversions.
Sri Lanka imports loads of objects from India — its largest buying and selling accomplice — together with food, prescription drugs, development supplies, automobiles, fertilizers and chemical substances. Commerce between the 2 nations stood at $5.45 billion in 2021, in line with official figures.
Sabry mentioned accepting the Indian rupee would work as a bonus for Sri Lanka because the commerce imbalance between the 2 nations is in favor of India.
“We want extra Indian foreign money, so extra Indian folks coming right here and spending Indian foreign money is nice for us,” Sabry instructed reporters a day after visiting India with Sri Lankan president Ranil Wickremesinghe.
Through the go to, India and Sri Lanka signed a sequence of vitality, improvement and commerce agreements, signalling rising financial ties between the neighboring nations.
Relations between the 2 nations surged final yr when Sri Lanka was mired in its worst financial disaster in trendy historical past, triggered by a extreme international foreign money crunch that noticed important objects run out and residents queue for gasoline for days. It additionally suspended its compensation of international debt final yr.
India offered crucial monetary and humanitarian help value over $4 billion to its neighbor, together with meals, drugs and gasoline.
India was additionally the primary creditor to increase a letter of help in the direction of Sri Lanka’s debt restructuring efforts that helped kickstart help from the IMF, which accredited a $3 billion bailout bundle in March.
Sri Lanka’s whole debt has exceeded $83 billion, of which $41.5 billion is international and $42.1 billion is home. Sri Lanka has now began the method of restructuring it’s debt.
Sri Lanka’s strategic location within the Indian Ocean has lengthy attracted consideration from regional rivals India and China. For years, free-flowing loans and infrastructure investments from Beijing helped it achieve an higher hand in opposition to New Delhi within the quest for affect.
However the nation’s financial collapse gave New Delhi a chance to swing the pendulum again in its favor, particularly as China delayed its help for debt restructuring, consultants say. China owns about 10% of Sri Lanka’s international debt.