Sri Lanka prepares to use the Indian rupee
Battling the economic downturn, Sri Lanka is considering allowing the Indian rupee to be used in domestic transactions.
The South Asian country is struggling to recover from the problems created by the depletion of foreign exchange reserves and emerge from last year’s unprecedented economic crisis.
Sri Lanka imports a large number of products from India, its largest trading partner, including food, pharmaceuticals, building materials, automobiles, fertilizers, and chemicals. According to official figures, trade between the two countries is $5.45 billion in 2021.
BIG HELP FROM INDIA
India has also provided its neighbor with more than $4 billion in critical financial and humanitarian aid, including food, medicine and fuel. Sri Lanka’s total debt exceeds $83 billion. 41.5 billion dollars of this is foreign debt.
“Indian tourists will be able to use their rupees directly here without the hassle of currency conversion,” Sri Lankan Foreign Minister Ali Sabry said yesterday regarding his neighbor’s move to allow the use of its currency.
Sabry said accepting the Indian rupee would be to Sri Lanka’s advantage as the trade imbalance between the two countries favors India. Sabry said: “We need more Indian rupees. So it’s good for us that more Indians come here and spend their money.”
CHINESE AND INDIAN COMPETITION
Sri Lanka’s strategic location on the Indian Ocean has long drawn the attention of its regional rivals India and China.
For years, Beijing’s loans and infrastructure investments helped Beijing gain an advantage over New Delhi.
However, experts are of the opinion that the needle may turn in India’s favor due to the economic collapse.
IMF APPROVES RESCUE PACKAGE
Facing the worst economic crisis in its history, Sri Lanka received a $600 million loan from the World Bank in 2022. In March, the IMF approved a $2.9 billion rescue package for Sri Lanka under the Expanded Facility Fund (EFF).
It is known that Sri Lanka owes about $7 billion to China and about $1 billion to India. In February, both countries agreed to restructure their loans, giving Sri Lanka more time to repay.