India extended a $500 million credit line to Sri Lanka to fund the country’s fuel purchases, as the island nation struggles to overcome its worst financial and energy crisis in decades.
India’s support for fuel imports by Sri Lanka from India was in response to the urgent requirement and this critical support comes in the wake of a virtual meeting between the External Affairs Minister S Jaishankar and the Minister of Finance Basil Rajapaksa on January 15, 2022, the Indian High Commission here said.
The Export Import Bank (EXIM) of India and the Government of Sri Lanka (GOSL) signed a $500 million Line of Credit (LOC) Agreement for purchase of petroleum products on February 2, 2022, in the presence of the Minister of Finance of Sri Lanka, Basil Rajapaksa and the High Commissioner of India to Sri Lanka, Gopal Baglay, it said in a press release.
With the recent support, India’s overall development assistance to Sri Lanka stands at close to $4 billion, the Indian High Commission said.
Sri Lanka’s Treasury Secretary, SR Attygalle and Chief General Manager of EXIM Bank, Gaurav Bhandari from the Indian side were the signatories.
“As Sri Lanka’s closest neighbour and long-standing partner, India is committed to assist Sri Lanka in its post-Covid economic recovery. Signing of the LOC Agreement is another landmark in our bilateral cooperation and is in continuation of India’s recent foreign exchange support of over $900 million,” the Indian High Commission said.
The credit line, which was under negotiations since August 2021, would ease pressure on the country’s dwindling reserves that had dipped to $3.1 billion by December 2021, according to the Central Bank’s estimates.
Last week, India had also granted Sri Lanka a $400 million swap arrangement to boost its reserves. On Tuesday, Sri Lanka had decided to purchase 40,000 metric tonnes each of petrol and diesel from the Indian Oil Corporation, according to a Cabinet note.
The move came weeks after Power Minister Gamini Lokuge said that Sri Lanka would hold talks with the Indian Oil Corporation’s local entity amid a severe foreign exchange crisis.
Lanka IOC (LIOC), the Sri Lankan subsidiary of India’s oil major Indian Oil Corporation, has been in operation in Sri Lanka since 2002.
Sri Lanka in the recent weeks has been mulling different options to facilitate measures to prevent fuel pumps from going dry as the island nation faced an acute foreign exchange crisis.
Energy Minister Udaya Gammanpila had predicted fuel shortages in the country due to the inability to pay for imports. The country is also grappling with a shortage of almost all essentials due to the lack of dollars to pay for the imports.
Additionally, power cuts are imposed at peak hours as the state power entity is unable to obtain fuel to run turbines. The state fuel entity has stopped oil supplies as the electricity board has large unpaid bills.
The country’s only refinery had to be shut down twice in November 2021, since it was unable to pay for imports.
Last month, the Indian government had announced a billion-dollar assistance package in addition to other balance of payment support to its neighbour.
