03 February 2022 10:33:43
Sri Lanka on Wednesday signed a $500 million line of credit with India to import fuel, officials said, as the island nation seeks to avoid power cuts amid a currency crisis that has hampered purchases of diesel for power plants, reports Reuters.
The Export-Import Bank of India (EXIM) will provide the line of credit for the purchase of petroleum products, the Indian High Commission in Colombo, Sri Lanka’s main city, said on Twitter.
Sri Lanka is grappling with its worst financial crisis in years with reserves hitting $3.1 billion in December. The country must repay about $4 billion in debt this year. Read more
He expects to receive another $1 billion line of credit from India to purchase essential goods including food and medicine by the end of February or early March, the finance minister has said. Basil Rajapaksa.
“Our priority is to get external debt back on track this year. This fuel credit line will support our efforts,” Rajapaksa told reporters. “We expect the second $1 billion line of credit to close by the end of February or the first week of March.”
In total, Rajapaksa said Sri Lanka will need $30 billion for imports and debt repayment in 2022.
Rising world oil prices have compounded Sri Lanka’s economic woes, with oil import spending reaching around $500 million a month. Sri Lanka and India started negotiations on the line of credit to import fuel in August.
Sri Lanka will pay LIBOR+1.25% for the credit line, which will run for one year and can be renewed thereafter, Energy Minister Udaya Gammanpila told Reuters.
The government hopes to launch 565,000 metric tons of imports from the first week of March and plans six shipments of gasoline and ten shipments of diesel, he said.
“Given the seriousness of Sri Lanka’s reserve situation, this line of credit will be helpful, but it only adds to our indebtedness and does not solve any problems,” said economic analyst Murtaza Jafferjee of JB Securities.
Sri Lanka is also in talks with Pakistan for a $200 million line of credit to buy rice, cement and medicine, Commerce Minister Bandula Gunawardena told Reuters.
“We have also entered into talks with Australia for another $200 million line of credit to buy grain and other staples,” he said. “The government’s priority is to maintain reserves to repay our debt but also to ensure that there is no shortage of goods for citizens.”