Credit line

India offers $500m fuel line of credit to cash-strapped Sri Lanka

India has offered a new $500 million line of credit to Sri Lanka to finance fuel purchases, the Indian High Commission in Colombo said on Tuesday, as the island struggles to manage its worst financial crisis in decades. years.

The line of credit, which had been under negotiation since August 2021, will ease pressure on the country’s dwindling reserves which fell to $3.1 billion at the end of December.

India last week also granted Sri Lanka a $400 million swap deal to boost its reserves and help pay down its debt.

International rating agencies had expressed doubts about the island nation’s ability to meet its $1.5 billion international sovereign bonds, the first $500 million of which came due on Tuesday.

Settlement of the bonds, issued in 2012, came despite calls from the business fraternity, economic analysts and opposition politicians to postpone payment given the severe currency crisis.

They felt that the country’s foreign exchange reserves should be used to pay for imports of essential goods. Shortages of food and basic necessities are rife due to the scarcity of foreign currency. Shipments are blocked at the port, while power cuts are imposed as the energy sector has been hit by the currency crisis.

The next bond payment of $1 billion is due in July. The total debt owed by Lanka this year is over $6 billion.

In his address to Parliament in the morning, President Gotabaya Rajapkasa admitted that the most serious challenge facing his government is economic management in the current currency crisis.

“Today we are facing the apogee of a problem for which a number of governments have failed to provide a lasting solution… More than $6 billion a year in external debt must be repaid over the course of of the next two years. It is the loans taken out by all previous governments from time to time that we have to repay,” he said.

Last week, Rajapkasa urged Chinese Foreign Minister Wang Yi to restructure China’s debt to Sri Lanka as a favor. More than $2 billion is expected to flow to China in 2022.

Lanka’s economy shrank 3.6% last year as the coronavirus pandemic hurt revenue from tourism, a major foreign exchange earner.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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