REUTERS: Sri Lanka has sought an additional credit line of US $ 1 billion from India to import essentials amid its worst economic crisis in decades, two sources said yesterday, as the Indian foreign minister began talks with the government of its neighbour.
The island nation is struggling to pay for essential imports of food and fuel after a 70 percent drop in foreign exchange reserves since January 2020 led to a currency devaluation and efforts to seek help from global lenders.
New Delhi has indicated it would meet the request for the new line, to be used for importing essential items such as rice, wheat flour, pulses, sugar and medicines, said one of the sources briefed on the matter.
“Sri Lanka has requested an additional US $ 1 billion credit line from India for imports of essentials,” the second source said.
“This will be on top of the US $ 1 billion credit line already pledged by India.”
Both sources declined to be identified as the discussions were confidential.
The finance and foreign ministries of Sri Lanka, as well as India’s foreign ministry, did not immediately respond to requests seeking comment.
Sri Lankan Finance Minister Basil Rajapaksa signed the earlier credit line of US $ 1 billion this month in the Indian capital of New Delhi to help pay for critical imports.
Indian Foreign Minister Subrahmanyam Jaishankar met Rajapaksa yesterday after arriving in the Sri Lankan capital of Colombo late the previous day.
“Discussed the economic situation and India’s supportive response,” Jaishankar said on Twitter, with a photograph of the two officials next to each other.
In addition to the credit lines, India extended a US $ 400 million currency swap and a US $ 500-million credit line for fuel purchases to Sri Lanka earlier this year.
Sri Lanka’s imports stalled, causing shortages of many essential items, after foreign currency reserves fell to US $ 2.31 billion by February.
The nation just off India’s southern tip has to repay debt of about US $ 4 billion in the rest of this year, including a US $ 1 billion international sovereign bond that matures in July.
Rajapaksa is set to fly to Washington, D.C. next month to start talks with the International Monetary Fund (IMF) for a rescue plan.
“India is also very supportive of Sri Lanka’s decision to seek an IMF programme and has given their fullest support,” one of the sources added.