India extends additional $500 million credit line to Sri Lanka for purchasing fuel

Finance Minister Ali Sabry announced that India has agreed to give an additional $500 million credit line to help Sri Lanka import petroleum, despite delays in negotiating a rescue package with the IMF to alleviate the island nation’s acute financial predicament.

Sri Lanka has been unable to pay for imports as a result of a dramatic drop in foreign exchange reserves in recent years, resulting in a currency devaluation and skyrocketing inflation.

“India has agreed to provide an additional $500 million for our fuel imports,” Mr. Sabry said on Friday, while adding that he was hopeful that New Delhi would consider handing out another $1 billion dollars as a credit line.

India has previously agreed to delay $1.5 billion in import payments due to the Asian Clearing Union by Sri Lanka.

New Delhi also extended the term of a $400 million swap it made in January, according to the Indian High Commission.

Mr. Sabry is currently in Washington, D.C., negotiating with the International Monetary Fund on a programme (IMF).

The finance minister stated that discussions on an Extended Fund Facility have commenced, but that the program’s finer features have yet to be finalised.

Mr. Sabry has been in talks with international institutions such as the World Bank, as well as nations such as China and Japan, seeking financial aid. Sri Lanka needs at least $4 billion to tide over its rising economic troubles.

“It will be a difficult period in the next nine months. During that time there is a need to bring in more investments in U.S. dollars into the central bank. We are talking with several countries. If these efforts are successful, and if investment of about $2 billion comes to the central bank, it will help stop the depreciation and stabilise the rupee,” Mr. Sabry said.

Sri Lanka ceased debt servicing for the first time in its history on April 12.

The Sri Lankan government announced last week that it would temporarily default on $35.5 billion in international debt due to the pandemic and the war in Ukraine, which made payments to foreign creditors impossible.

Food shortages, increasing fuel prices, and significant power outages have erupted in Sri Lanka in recent weeks as a result of the country’s catastrophic financial crisis.