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Sri Lanka to sign $500m line of credit with India on February 2

Through PTI

COLOMBO: Sri Lanka will formally sign an agreement with India on Wednesday for a $500 million line of credit, which would help finance fuel purchases at a time when the country faces its worst financial and energy crisis in decades. decades.

Last month, the Indian High Commission here said External Affairs Minister S.

Jaishankar agreed to offer critical support and a $500 million line of credit in a letter to his Sri Lankan counterpart GL Peiris.

“The agreement for the line of credit will be signed on Wednesday afternoon.

Under this deal, Sri Lanka could import fuel from any Indian supplier,” a senior Sri Lankan official said.

The line of credit, which had been under negotiation since August 2021, would ease pressure on the country’s declining reserves which had fallen to $3.1 billion in December 2021, according to central bank estimates.

Last week, India also granted Sri Lanka a $400 million swap deal to boost its reserves.

On Tuesday, Sri Lanka had decided to buy 40,000 metric tons of gasoline and diesel from the Indian Oil Corporation, according to a Cabinet memo.

The move came weeks after Energy Minister Gamini Lokuge said Sri Lanka would hold talks with the local entity of the Indian Oil Corporation amid a severe currency crisis.

Lanka IOC (LIOC), the Sri Lankan subsidiary of the major Indian oil company Indian Oil Corporation, has been operating in Sri Lanka since 2002.

Over the past few weeks, Sri Lanka has been mulling various options to facilitate measures to prevent fuel pumps from running dry as the island nation faces a severe foreign exchange crisis to pay for its imports.

Energy Minister Udaya Gammanpila had predicted fuel shortages in the country due to the inability to pay for imports.

When the crisis erupted, the government contacted LIOC, the local IOC operation, to import fuel for the government.

The LIOC had previously refused the request because itself was affected by the shortage of foreign currency to import.

The country is also struggling with a shortage of almost all basic necessities due to lack of dollars to pay for imports.

In addition, power cuts are imposed during peak hours, as the public entity is unable to obtain fuel to run the turbines.

The public entity in charge of fuels has interrupted the oil supply because the electricity company has large unpaid bills.

The country’s only refinery had to be closed twice in November 2021 because it was unable to pay for crude imports.

Last month, the Indian government announced a billion-dollar aid package on top of other balance-of-payments support from its neighbour.