Only hit by the crisis, Sri Lanka is seeking another $1bn credit line from Indian sources

FILE PHOTO: A man walks along a beach with Colombo's Financial City in the background
FILE PHOTO: A man walks along a beach, against the backdrop of Colombo’s Financial City, Sri Lanka, June 12, 2018. REUTERS/ Dinuka Liyanawatte

March 28, 2022

By Uditha Jayasinghe

COLOMBO (Reuters) – Sri Lanka has requested an additional $1 billion line of credit from India to import essentials amid its worst economic crisis in decades, two sources said on Monday as India’s foreign minister held talks with the government of his took in neighbors.

The island nation is struggling to pay for essential food and fuel imports after a 70% drop in foreign exchange reserves since January 2020 prompted currency depreciation and efforts to seek help from global lenders.

New Delhi has indicated it would honor the request for the new line, which would be used to import essential commodities such as rice, wheat flour, pulses, sugar and medicines, said one of the sources briefed on the matter.

“Sri Lanka has asked India for an additional $1 billion credit line to import essential necessities,” the second source said. “This will be in addition to the $1 billion credit line already committed by India.”

Both sources declined to be identified as the talks were confidential.

Sri Lanka’s finance and foreign ministries, as well as the Indian foreign ministry, did not immediately respond to requests for comment.

Sri Lanka Finance Minister Basil Rajapaksa signed the earlier US$1 billion credit line in the Indian capital New Delhi this month to help finance critical imports

Indian Foreign Minister Subrahmanyam Jaishankar met with Rajapaksa Monday after his arrival in the Sri Lankan capital Colombo late the day before.

“We discussed the economic situation and India’s supportive response,” Jaishankar said on Twitter, with a photo of the two officials side by side.

In addition to the lines of credit, India granted Sri Lanka a $400 million currency swap earlier this year and a $500 million line of credit for fuel purchases.

Sri Lanka’s imports faltered, causing shortages of many essential items after foreign exchange reserves fell to $2.31 billion by February.

The nation just at the southern tip of India has about $4 billion in debt to repay over the remainder of this year, including a $1 billion international government bond maturing in July.

Rajapaksa will fly to Washington DC next month to begin talks with the International Monetary Fund (IMF) on a rescue plan.

“India also strongly supports Sri Lanka’s decision to seek an IMF program and has given its full support,” added one of the sources.

(Writing by Devjyot Ghoshal; Editing by Clarence Fernandez) Only hit by the crisis, Sri Lanka is seeking another $1bn credit line from Indian sources

Bobby Allyn

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