Colombo : Sri Lanka has sought an additional $1.5 billion line of credit for imports of essential goods from India, the island nation’s central bank governor said on Monday amid its worst economic crisis in decades.
The country of 22 million people is struggling to pay for essential imports after a 70% fall in foreign exchange reserves in two years, leading to currency devaluation and efforts to seek help from global lenders.
Fuel is in short supply, food prices are rising and protests have erupted as Sri Lanka’s government prepares for talks with the International Monetary Fund amid concerns over the country’s ability to repay foreign debt.
The new line is on top of the $1 billion aid offered by India to help pay for critical imports when Sri Lanka’s Finance Minister Basil Rajapaksa visited New Delhi earlier this month.
“Very close discussions are on for an additional support (with India) of $1.5 billion by way of support for oil support as well as other essential items of loan terms,” Ajit Nivard Cabral said at an online event.
Cabral’s comments came after a Reuters report said the troubled country was in talks with India for an additional $1 billion line of credit.
New Delhi has indicated that it will fulfill a request for the new line, which will be used to import essential commodities such as rice, wheat flour, pulses, sugar and medicines, a source on the matter told Reuters.
India’s foreign ministry did not respond to a request for comment.
regional rivalry
India’s support for the Sri Lankan economy comes after the previous administration led by the powerful Rajapaksa family brought the island nation closer to China over the past decade, sparking unease in New Delhi.
Indian Foreign Minister Subrahmanyam Jaishankar on Monday met the Finance Minister and his brother, President Gotabaya Rajapaksa, in Sri Lanka’s main city of Colombo for talks.
“Reviewed various dimensions of our close neighborly relations,” Jaishankar said in a tweet after meeting the President. “Assured him of India’s continued cooperation and understanding.”
In addition to lines of credit, India this year provided Sri Lanka with a $400 million currency swap and a $500 million line of credit for fuel purchases.
“India will be an ally for Sri Lanka’s future progress,” Cabral said.
Sri Lanka’s imports came to a standstill after foreign exchange reserves fell to $2.31 billion by February, leading to shortages of several essential commodities.
The country, just off the southern tip of India, has about $4 billion in debt to be paid off for the rest of this year, including $1 billion in international sovereign bonds that mature in July.
Faced with an increasingly deepening crisis, President Rajapaksa has also sought help from Beijing, including a request to restructure debt payments.
His government is in talks for $2.5 billion in line of credit from China, with a decision expected in the next few weeks.
Finance Minister Rajapaksa is set to fly to Washington, DC next month to begin talks with the IMF for a rescue plan and seek support from the World Bank.
Another source said, “India also strongly supports Sri Lanka’s decision to seek an IMF program and has given its full support.”
Sri Lanka’s government bonds fell on Monday after the IMF warned the country needed a “comprehensive strategy” to make its debt sustainable. (Written by Devjyot Ghoshal and Aftab Ahmed; Editing by Clarence Fernandez, Mark Potter and Ed Osmond)
This story has been published without modification in text from a wire agency feed.
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