ECONOMYNEXT – Sri Lanka is likely to receive a US$200 million line of credit from Pakistan for essential foodstuffs, rice and cement, sources familiar with the deal have said as the island nation grapples with a serious currency crisis.
“It is likely to be signed when a Sri Lankan leader visits Pakistan, possibly before the end of this year,” a source with knowledge of the deal’s progress told EconomyNext.
Sri Lanka has already borrowed US$1.5 billion from the People’s Bank of China, US$400 million from the Reserve Bank of India (RBI) and US$250 million from the Central Bank of Bangladesh through loan agreements. swap to increase its reserves and avoid possible sovereign debt. fault.
Pakistan’s line of credit talks come as Sri Lanka’s rice crop could fall by 30% or more after an overnight ban on fertilizers to save foreign currency and halt the use of agrochemicals.
A Pakistani source who is familiar with the ongoing talks on the line of credit said the initial request, which came in September last year, was only for a line of credit for rice and cement.
However, when Sri Lankan Trade Minister Bandula Gunawardena visited Islamabad in January, Pakistan was also urged to extend the deal for essential goods.
“In principle, the Pakistani Prime Minister has approved this and it is ongoing,” he said.
“The agreement will be signed when a Sri Lankan leader visits Pakistan.”
Sri Lanka is trying to finance imports of essential commodities, including food and medicine, through lines of credit for this year amid foreign exchange shortages as it faces a risk of default of sovereign debt.
Sri Lanka has a habit of opting for lines of credit whenever printing money triggers a shortage of foreign exchange. Lines of credit allow imports and consumption to take place on credit or in a financial account. Central bankers and other political leaders then complain about the expansion of the external current account.
The island nation has already signed a 500 million line of credit with India to buy fuel from India and Sri Lanka plans to start using the line of credit from the first week of April.
India has also accepted a US$1 billion line of credit for Sri Lanka to purchase food and medicine.
Sri Lanka is also in talks with Australia for another $200 million line of credit to buy lentils and essential foods, local media reported. (Colombo/February 21, 2022)