India has given effect to the a 500 million US dollar credit line using which Sri Lanka can import oil, as money printed to keep rates low, boosted imports to record levels, triggering forex shortages and made it difficult to import oil.
Sri Lanka can use the credit line to buy oil from India and also third countries, the Press Trust of India reported, following the approval of the Reserve Bank of India.
Sri Lanka has to buy 75 percent of the goods from Indian exporters and the balance from any other country.
The line of credit can be used for six months of signing the agreement and extended at the request of the borrower.
The Reserve Bank of India has said extension should not be more than 12 months, the report said.
Sri Lanka is in the habit of borrowing dollars to buy oil after money printing creates forex shortages.
State-run Ceylon Petroleum Corporation is indebted to the hilt due to past borrowings from banks to import oil.
Suppliers have now refused to give any more credit and are asking for upfront payment. Meanwhile some suppliers
The CPC has for many years got suppliers’ credit to buy oil and has ended up billion over 3 billion US dollars of loans despite market pricing oil.
It is not clear whether the 500 million dollar credit line would be used to subsidise oil, adding to the overall public debt burden.
Sri Lanka’s state economists have a habit of using borrowings and credit lines after printing money and then jumping up and crying wolf about a widening current account deficit.