Sri Lanka Secures $1 Billion Credit Facility From India
State Bank of India and Sri Lankan government signed pact for $1 billion credit facility.
(Bloomberg) -- Sri Lanka firmed up a $1 billion credit line from neighboring India, a move that will ease a foreign exchange shortage for the nation even as it inches closer to an International Monetary Fund bailout.
The agreement, which includes aid for essentials like food and medicines, was signed between State Bank of India and the Sri Lankan government during Finance Minister Basil Rajapaksa’s visit to India Thursday.
The aid comes at a time when a surge in oil prices, slower exports and a stunted tourism revival due to the war in Ukraine have jolted the $81 billion economy. President Gotabaya Rajapaksa said the government was in discussions with international financial institutions and friendly countries for repayment of loan installments, in an address to the nation on Wednesday.
The country has about $2 billion of foreign-currency reserves against total debt repayment of as much as $7 billion for 2022, including $1 billion of notes maturing in July.
The island nation has been facing a raft of challenges including shortage of food, medicines and fuel that stoked Asia’s fastest inflation, forcing policy makers to undertake currency devaluation, impose import restrictions and hike policy rates.
India, in January, threw a lifeline to Sri Lanka, extending a $400 million swap and deferring an Asian Clearing Union settlement of $500 million. India has also offered a line of credit of $500 million to Sri Lanka for purchase of petroleum products.
Sri Lanka also drew down a $1.5 billion swap line from China to bolster reserves, a part of which was used to repay foreign-currency bonds on Jan. 18.
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