India has agreed to extend an additional $500m line of credit to help Sri Lanka import fuel, Finance Minister Ali Sabry has said, amid delays in drawing up a bailout plan with the IMF to alleviate the severe financial crisis facing the island nation.
Sri Lanka is struggling to pay for its imports after its foreign exchange reserves have fallen sharply in recent times, causing a devaluation of its currency and runaway inflation.
India has agreed to provide an additional $500 million for our fuel imports, Sabry said on Friday, while adding that he hoped New Delhi would consider handing out an additional $1 billion as a line of credit.
India has already agreed to defer $1.5 billion in import payments Sri Lanka has to make to the Asian Clearing Union.
On Friday, New Delhi also extended the term of a $400 million swap granted in January this year, the Indian High Commission said.
Sabry is currently in Washington to negotiate a program with the International Monetary Fund (IMF).
The finance minister said talks have started on an expanded funding mechanism, but the finer details of the program have yet to be finalized.
Sri Lanka needs at least $4 billion to overcome its growing economic difficulties, and Sabry has been in talks with international institutions such as the World Bank as well as countries such as China and Japan for financial assistance.
It will be a difficult time over the next nine months. Meanwhile, there is a need to bring more US dollar investments to the central bank. We are discussing with several countries. If these efforts are successful and an investment of about $2 billion reaches the central bank, it will help stop the depreciation and stabilize the rupee, Sabry said.
On April 12, Sri Lanka suspended debt service for the first time in its history.
Last week, the Sri Lankan government said it would temporarily default on $35.5 billion in external debt as the pandemic and war in Ukraine made payments to foreign creditors impossible.
Sri Lanka has witnessed massive anti-government protests in recent weeks as it suffers from food shortages, soaring fuel prices and major power cuts due to the unprecedented financial crisis.
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