Jaishankar visits Sri Lanka as island faces economic crisis

India's External Affairs Minister S. Jaishankar is on a visit to Sri Lanka ata time when growing Chinese influence is testing this relationship.

Jaishankar is on a two-day visit and he will be holding bilateral talks with his counterpart, as well as the Rajapaksa brothers — President Gotabaya Rajapaksa andthe Prime Minister Mahinda Rajapaksa.

The agenda

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The first agenda of this visit is the proposal to build a terminal at the Colombo port, also known asthe East Container Terminal. India, alongside Japan, has an agreement to develop this terminal for Sri Lanka.

In 2019,the three countries had signed a memorandum of cooperation. The terms were that the Sri Lanka ports authority will retain 100 per cent ownership, the terminal would be run by a joint company — owned collectively by India, Japan and Sri Lanka, andSri Lanka will be the majority owner with 51 per cent, India and Japan will have a 49 per cent stake.

This agreementis starkly different from the one Sri Lanka signed with China for the Hambantota port —aproject that was largely funded by China.

The arrangement pushed Colombo into a debt trap. Ultimately, it had to lease the port to China for 99 years in 2017.

Now with the Indian minister in Sri Lanka, we might get an indication about Sri Lanka's thinking; which way its leaning for the Colombo port project becauseit has faced opposition from workers and some politicians.

However, the early signs are promising. Before Jaishankar's visit,Sri Lanka's port and shipping minister issued a statement sayingthe east container terminal will be developed andnot sold to anyone. He claimed the terminal will be an "Economic and naval hub".

The second item on agenda could befinancial assistance. Last year, Colombo had made a request to New Delhi. The Sri Lankan government wanted a special one billion currency swap facility with India as well as a debt moratorium.

These are testing times for the Sri Lankan economy. It faces what many are calling its "worst economic slump".

Last month, Colombo announced that its GDP for the second quarter plunged by 16.3 per cent. The Sri Lankan central bank projects a 3.9 per cent contraction this year mainly due to the coronavirus.

The pandemic has hit Sri Lanka's tourism sector badly too. International arrivals fell by close to 71 per cent in March last year. Before the pandemic, Sri Lanka reportedly lost 1.5 billion from tourism because of the easter bombings. So, the virus came as a double whammy for Colombo.

Now, Sri Lanka has ordered tight controls over foreign exchange. A ban has been imposed on all non-essential imports, includingall types of vehicles.

Colombo's debt obligation amounts to around four billion a year, but Sri Lanka says it will honour all commitments. However, international ratings agencies have slashed the credit worthiness of Sri Lanka.

At a time like this, any assistance from India will be welcome in Colombo. More importantly,Jaishankar's visit could decide the future trajectory of this relationship.