India to IMF-World Bank: Tag Sri Lanka as ‘low-income’

India to IMF-World Bank: Tag Sri Lanka as ‘low-income’

Recently India has urged the International Monetary Fund (IMF) and the World Bank to reclassify Sri Lanka as a low-income country. India has also requested for emergency assistance to Sri Lanka. This amount should be given in the same way as aid is being given to Ukraine under the emergency assistance program “Rapid Financing Instrument” (RFI).

  • It aims to assist Sri Lanka in its debt restructuring. This will help Sri Lanka become a party to the Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Management beyond DSSI.
  • The above arrangements are joint initiatives of the World Bank, IMF and G- These are for Least Developed Countries and Low Income Countries respectively.
  • These initiatives are aimed at helping such countries to deal with the credit related challenges arising out of the COVID-19
  • Debt restructuring refers to a process in which a borrower who is facing financial difficulties is given a concession by the lender as per mutual agreement.
  • Sovereign debt crisis occurs when a country is unable to pay its bills, and the country’s leaders ignore these indicators for political reasons.

IMF takes the following measures to resolve the sovereign debt crisis:

  • Helps identify sovereign credit risks,
  • Provides policy advice
  • Provides technical assistance in formulation of debt management strategy,
  • Provides technical assistance to these countries in developing their local currency bond markets etc.

Source – The Hindu

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