In a recent podcast episode from ANI with Smita Prakash  featuring the Sri Lankan High Commissioner to India, Mr. Milinda Moragoda, two critical topics were discussed: India-Sri Lanka relations and the economic crisis that Sri Lanka faced in 2022. This blog post dives into the key points highlighted during the conversation, shedding light on the challenges Sri Lanka encountered and the crucial role played by India in stabilizing its economy.

The Build-Up of an Economic Crisis: The economic crisis that befell Sri Lanka was not an overnight occurrence. As Mr. Moragoda pointed out, it was long in the making. Since gaining independence 75 years ago, Sri Lanka has been living beyond its means. A significant portion of government revenues, approximately 80%, was allocated to salaries and pensions for government servants. With a population of 22 million, the burden on the budget became unsustainable.

Mismanagement and Lack of Wealth Creation: While Sri Lanka achieved commendable progress in education and healthcare, it failed to create wealth in the private sector. The country’s economy was heavily reliant on government services, and the private sector did not receive adequate attention. This lack of wealth creation and failure to restructure the economy left Sri Lanka vulnerable to economic challenges.

India’s Crucial Role in Stabilization: During the crisis, India played a crucial role in stabilizing Sri Lanka’s economy. While other international institutions, including the IMF, were unwilling to step in, India provided essential financial assistance amounting to 4 billion US dollars. This support allowed Sri Lanka to import crucial supplies and averted a more severe disruption. Prime Minister Modi and the Indian government’s assistance were instrumental in stabilizing the economy during this critical period.

India-Sri Lanka Relations: A Complex Historical Background: India’s relationship with Sri Lanka is rooted in a history that spans over two thousand years. The two nations share intellectual, cultural, trade, religious, and linguistic links. However, the relationship has faced challenges, particularly during the civil war with the Tamil insurgent force, LTTE, in the 1970s and 80s. India’s involvement in the conflict and the signing of the Indo-Sri Lanka Peace Accord in 1987 demonstrated the complexity of the relationship.

The Path to Recovery and Future Prospects: To overcome the economic crisis and lay the foundation for future growth, Sri Lanka recognizes the need for structural changes and collaboration with India. Mr. Moragoda emphasized the importance of working with the IMF to stabilize the economy and subsequently focusing on a growth agenda. Restructuring the power and petroleum sectors and reducing the state’s involvement in businesses are among the key steps needed. The integration and connectivity with India in various sectors, including electricity and oil, hold significant potential for Sri Lanka’s recovery.

Fostering Closer India-Sri Lanka Ties: Beyond the economic aspects, building closer ties between India and Sri Lanka is crucial for the region’s stability and progress. Mr. Moragoda highlighted the shared cultural heritage and geographic proximity as compelling reasons to strengthen the bond. People-to-people exchanges and fostering a sense of shared genealogy will play a vital role in shaping a closer relationship.

Sri Lanka’s economic crisis was the result of long-standing issues, including the lack of wealth creation and inadequate restructuring of the economy. India’s support during the crisis proved pivotal in stabilizing Sri Lanka’s economy. Moving forward, integrating with India in various sectors and fostering closer ties will be key to Sri Lanka’s recovery and future growth. The path to recovery requires collaboration, structural reforms, and people-to-people connections, all aimed at strengthening the India-Sri Lanka relationship and ensuring a more prosperous future for both nations.