India has suggested to the International Monetary Fund (IMF) and World Bank (WB) to temporarily give Sri Lanka – grappling with its worst financial crisis – the tag of a lower-income country to help the island nation restructure its debt.

Sri Lanka is currently classified as a middle-income country.

India also proposed that Sri Lanka be given emergency funding similar to the one granted to conflict-hit Ukraine in March this year, reports the New Delhi correspondent of the Daily Star.

The suggestions were made by Indian finance minister Nirmala Sitharaman to the IMF and WB at a meeting in Washington last week, officials in New Delhi said.

They said Sitharaman had contended that although Sri Lanka was classified as a middle-income country at the start of the Covid-19 pandemic, the nature of the country’s economy, its dependence on income from the tourism sector, and the resultant dip in national revenues due to the pandemic, has meant that the country might possibly be categorised as a lower-income country as a temporary measure.

The reclassification of Sri Lanka as a lower-income country could help it restructure its debt under the “Common Framework for debt treatment beyond DSSI”.

The Debt Service Suspension Initiative (DSSI) was set up by the IMF and WB after the pandemic and its tenure ended in December last year.

In November last year, the IMF and WB had set up the common framework and the countries eligible for these initiatives are low-income nations with unsustainable debt.

On March 9 this year, the IMF executive board okayed a $1.4 billion in additional financing for Ukraine under an emergency support programme known as the Rapid Financing Instrument (RFI). Sitharaman is understood to have favoured the same for Sri Lanka.