India is holding “close and constructive” discussions with Sri Lanka, on Colombo’s pending requests for rescheduling its debt repayment and for currency swap facilities under bilateral and SAARC arrangements, the Indian mission here said on Tuesday.

Indian High Commissioner Gopal Baglay held discussions “at senior levels” in Colombo on Monday and Tuesday, the statement issued by the Indian High Commission said, on taking forward ongoing discussions.

The press release comes two days after The Hindu reported that ‘With India yet to respond on debt freeze request, Sri Lanka turns to China’ for further assistance. Sri Lankan Prime Minister Mahinda Rajapaksa had sought a moratorium on the debt owed by Colombo – totalling $960 million – during his New Delhi visit in February this year. The request “was under consideration”, officials in the Ministry of External Affairs had told The Hindu, adding that they were waiting to hear from Colombo on possible dates for the virtual talks New Delhi had suggested.

“The matter [Sri Lanka’s requests] had been taken up at the leadership level and has been followed up by senior functionaries bilaterally,” the High Commission’s statement said on Tuesday, adding that India “remains committed to partner Sri Lanka closely” for the latter’s sustained economic recovery and shared prosperity in the post-COVID world.

Mounting debt

Sri Lanka’s mounting external debt was a concern even before the coronavirus pandemic, but its impact has aggravated the strain on the island’s nation’s economy that is saddled with loans -- bilateral, multilateral and in the international money market -- amounting to billions of dollars.

This year alone, Sri Lanka is scheduled to repay $ 2.9 billion of its debt, which Colombo is reportedly trying to reschedule with bilateral partners. It is unclear how Sri Lanka will repay the apparently non-negotiable $ 1 billion international sovereign bond maturing this October.

While economists and experts have been arguing that Sri Lanka must avoid resorting to further debt in this situation, Colombo appears to have few other options in hand.

Sri Lanka is in talks with the IMF, from whom it sought a rapid financing instrument in April. Following the global pandemic, Beijing has pledged a loan of $ 500 million to help Colombo deal with its immediate impact. Sri Lanka already owes China about $ 5 billion. Further, upon Sri Lanka’s request the China Development Bank (CDB) on Tuesday entered into a $140 million-facility agreement with the Bank of Ceylon, drawn under two tranches of $ 70 million each to help the State-owned bank cope amid the pandemic.