Sri Lanka's Economic Crisis Creates Political Uncertainty

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Sri Lanka is facing an unprecedented economic crisis. Flawed domestic policies aggravated the slowdown caused by the COVID-19 pandemic, leading to a meltdown. This has in turn spawned political uncertainties for the government. A state of emergency was declared last week even as anti-government protests gathered momentum. India has reached out to provide financial help by offering credit lines, extending currency swaps and ensuring supplies of essentials, especially petroleum products. The Rajapakse government has enjoyed a close relationship with China though there is growing awareness about the strings tied to Chinese economic assistance. Sri Lanka is also negotiating for an extended facility with the IMF but the negotiations are proving difficult because of onerous conditions. How events in Sri Lanka evolve will have significant implications for India and its "neighbourhood first" policy.