India offers $500-mn fuel credit line to forex strapped Sri Lanka
- IBEF
- January 19, 2022
The Indian High Commission in Colombo said on Tuesday that India has provided Sri Lanka with a new US$ 500 million credit line to pay fuel imports, as the country grapples with its worst financial crisis in years. The credit line, which has been in the works since August 2021, will help the country's declining reserves, which reached US$ 3.1 billion at the end of December.
Sri Lanka was also awarded a US$ 400 million swap arrangement by India last week to assist it to bolster its reserves and repay debt. The island nation's capacity to repay its US$ 1.5 billion foreign sovereign bond payments, including the first US$ 500 million that matured on Tuesday, had been questioned by international rating agencies.
Despite appeals from the business community, economic analysts, and opposition politicians to postpone payment due to the acute foreign exchange crisis, the bonds were settled in 2012. They advocated for the nation's foreign currency reserves to be used to pay for vital imports. Due to a lack of foreign exchange, food and basics are in short supply. Shipments are being held up at the port, and power cuts are being implemented as a result of the forex crisis affecting the energy sector.
The next one-billion-dollar bond payment is due in July. Lanka owes more than US$ 6 billion in debt this year. President Gotabaya Rajapkasa recognised in his morning speech to Parliament that the most significant task facing his government is economic management in the current foreign exchange crisis.
“Today we are encountering the climax of a problem for which a number of governments have failed to provide a lasting solution...More than US$ 6 billion a year in foreign debt is to be repaid over the next two years. It is the loans taken by all previous governments from time to time that we have to repay," he said.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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