During his hurricane tour to Colombo, External Affairs Minister S Jaishankar made sure that Sri Lanka is able to pave the way for a crucial IMF loan to stabilise Colombo’s crashing economy

After India paved the way for the crucial bailout package by the International Monetary Fund (IMF) to stabilise Colombo’s collapsing economy Friday, China “came under pressure” to take a similar action, which it had been ignoring for several months now, multiple sources said.

Sri Lanka, which is strategically important for both India as well as China due to its location in the Indian Ocean, witnessed a massive spate of protests last year that brought down the then Gotabaya Rajapaksa government that was accused of bringing the economy of the island nation to the brink owing to a monumental debt due to Chinese loans.

When External Affairs Minister S Jaishankar, who was on a 24-hour visit to Sri Lanka, announced Friday that India is ready to give the required assurances needed by the IMF to approve the $2.9 billion package to Colombo, New Delhi also put China “in a fix” even as it “came under pressure” to take a similar action, top-level sources said

On Sunday, it was reported, China also extended its support to Sri Lanka for the IMF bailout package. However, no official announcement has yet been made by the Xi Jinping government on this.

Despite repeated requests by Sri Lanka, China had been reluctant in giving financial assurances to the IMF owing to the political instability in the island nation, said the sources mentioned above.

According to a readout by the Sri Lankan foreign ministry, India was the “first country” to officially support the IMF-led debt restructuring program.

In September 2022, IMF reached an agreement with Sri Lanka to offer the package with a 48-month arrangement under their extended fund facility (EFF) provision. However, the offer of the EFF was contingent upon Sri Lanka's financial reassurances from its official creditors – India, China and Japan – to restore the country’s debt sustainability.

Since then, China had been in a dilly-dallying mode and refusing to go for any kind of debt-restructuring talks, giving “mixed signals” to the IMF. But it changed its stance within just a couple of days of India taking the step.

According to another source, the fact that India will take such a step was already communicated by National Security Advisor (NSA) Ajit Doval to Sri Lanka’s High Commissioner to India Milinda Moragoda during the series of meetings they have been having in the last more than six months.

“We felt strongly that Sri Lanka’s creditors must take proactive steps to facilitate its recovery. India decided not to wait on others but to do what we believe is right. We extended financing assurances to the IMF to clear the way for Sri Lanka to move forward. Our expectation is that this will not only strengthen Sri Lanka’s position but ensure that all bilateral creditors are dealt with equally,” Jaishankar said in Sri Lanka during a joint media address with his counterpart Ali Sabry. President Ranil Wickremasinghe was also in attendance during the press conference.

Earlier this month, Sri Lanka concluded debt restructuring talks with Japan, but Tokyo is yet to take action by way of writing to the IMF giving its financial reassurances.

While India has made it a tad easier for Sri Lanka to obtain the IMF package, New Delhi is now concerned that even under the present government led by President Wickremesinghe, some of its own demands may get cast aside once again.

This is the reason why New Delhi is keeping a “close watch” on the upcoming local council polls to be held on March 9.

The March polls are being seen as a “litmus test” for the current government to see how it plans to steer the country out of the economic crisis. Wickremesinghe has been put on the President’s chair with the backing of the Rajapaksas and so far he has not been able to douse the tensions that gripped the country last year, sources said.

The local polls for the 340 councils will see a bitter fight between the two main parties – the ruling Sri Lanka Podujana Peramuna (SLPP) and the main opposition Samagi Jana Balawegaya (SJB).

This is the reason why, according to the sources, Jaishankar met the former president Mahinda Rajapaksa and his son and former minister Namal Rajapaksa. He also met SJB’s Sajith Premadasa during the one-day trip.

The SJB has claimed that owing to the massive unpopularity of the SLPP, which enjoys a majority of the councils, this time it will be able to rule the councils.