India grants over $900 million to Sri Lanka to overcome forex crisis

In the face of a shortage of practically all critical commodities in Sri Lanka, India has pledged a US$ 900 million loan to help the island nation replenish its depleted foreign reserves and import food. Ajith Nivard Cabraal, the governor of the Central Bank, stated on Wednesday that the island nation is negotiating a US$ 1 billion loan from India to import products.

The Indian High Commissioner to Sri Lanka Gopal Baglay met Cabraal on Thursday and expressed “India's strong support to Sri Lanka in the wake of RBI extending over US$ 900 million facilities over the last week. These comprise deferment of Asian Clearing Union settlement of over US$ 509 million and currency swap of US$ 400 million," the tweet said.

Cabraal announced on Wednesday that billion-dollar loan talks with India had progressed to the next stage. Analysts here speculated that India's gesture may have contributed to Sri Lanka's announcement of a doubling of reserves at the end of December. The reserve position had increased to US$ 3 billion from US$ 1.5 billion in December, which was just enough for a month's imports, according to the central bank. The upcoming Indian loan, according to Cabraal, will be used to import food.

Leading to a shortage of dollars to pay for imports, Sri Lanka is currently experiencing a shortage of practically all essentials. Additionally, power cuts are imposed during peak hours due to a lack of fuel to drive turbines by the state power agency. Because the electrical board has substantial overdue bills, the state fuel organisation has halted oil deliveries. The only refinery was forced to close due to a lack of funds to pay for crude imports.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.