India and Sri Lanka conclude bilateral debt restructuring pact
Modi announces lower interest rates during Colombo visit Converts over US $ 100mn of Sri Lanka’s outstanding loans into grants
India and Sri Lanka have solidified a bilateral debt restructuring agreement, with New Delhi extending reduced interest rates to support the island nation’s economic recovery, Prime Minister Narendra Modi announced during his official visit to Colombo on Thursday.
The agreement, hailed as a critical step to alleviate Sri Lanka’s financial strain, aims to provide immediate fiscal relief. “This debt restructuring framework will accelerate assistance to Sri Lankans.
Today, we have also decided to lower interest rates, reaffirming India’s unwavering solidarity with our neighbours,” Modi stated.
Over the past six months, India converted over US $ 100 million of Sri Lanka’s outstanding loans into grants, easing the country’s debt burden. The current bilateral debt owed by Sri Lanka to India stands at approximately US $ 1.64 billion.
Indian Foreign Secretary Shri Vikram Misri emphasised India’s ‘investment-led approach’ to fostering sustainable growth in Sri Lanka, signalling a shift from mere aid to long-term economic collaboration.
Sri Lankan President Anura Kumara Dissanayake briefed Modi on the progress of Colombo’s debt restructuring programme, noting that the economy is “steadily stabilising”.
He expressed gratitude for India’s role in the process stating, “I am deeply thankful to the Indian government for its steadfast support during this pivotal restructuring phase.”
Dissanayake also highlighted the broader bilateral ties, underscoring how the partnership “strengthens not only economic bonds but also the cultural and people-to-people connections between our nations”.
He specifically acknowledged India’s decision to convert a US $ 14.9 million line of credit — initially allocated for the Maho-Omanthai railway line — into a grant to fund a signalling system for the Maho-Anuradhapura railway stretch.
The agreement marks a significant milestone in India’s Neighbourhood First policy, reinforcing its role as a regional stabiliser amid Sri Lanka’s post-crisis recovery.
By lowering interest rates and restructuring debt, India aims to bolster Sri Lanka’s liquidity while fostering infrastructure development critical to long-term resilience.
In March this year, Japan became the first country among Sri Lanka’s Official Creditor Committee members to finalise a bilateral debt restructuring agreement.
