Sri Lanka’s crippling energy crisis is expected to ease in the coming days as India extended a $1 billion line of credit, bringing total assistance to Colombo around $2.4 billion since January this year. The island country plunged into one of its worst economic crises due to a prolonged shortage of foreign exchange reserves. 

The assistance was announced late Thursday during the two-day visit of Sri Lankan Finance Minster Basil Rajapaksa when the State Bank of India signed an agreement with Sri Lanka’s Finance Ministry in New Delhi. The line of credit will cover the import of fuel, food, and other essentials. 

On Thursday, authorities in Sri Lanka put a limit on the sale of diesel not more than 10 liters per vehicle as fuel stations across the country run short of fuel. Public anger against the government sparked a series of protests in the capital Colombo, forcing President Gotabya Rajapaksa to announce that the government will approach the IMF for support. 

Basil, who was on a two-day visit to New Delhi, met senior Indian officials, including Prime Minister Narendra Modi, and also discussed the mid and long-term economic cooperation to pull the country out of the crisis. 

“Neighborhood first. India stands with Sri Lanka. US$ 1 billion credit line signed for [the] supply of essential commodities. Key element of the package of support extended by India,” Indian External Affairs Minister S Jaishankar tweeted. 

Earlier this year, India had extended assistance through a $400 million RBI currency swap, deferral of a $500 million loan, and another half a billion as a line of credit for the country to sustain its essential fuel imports.

On Thursday, the IMF said the country has been facing mounting economic challenges, and they will explore all options for a credible and coherent strategy to restore the country’s macro-economic stability and debt sustainability. 

This year alone Colombo was due for repaying foreign debt totaling nearly $ 7 billion, while the estimated earnings from exports and tourism are expected to be around $ 12 billion and $ 3 billion respectively. However, the import bills are expected to surpass $22 billion, creating a huge trade deficit of around $10 billion. Remittances would cover a maximum of $3 billion.

Apart from this, Sri Lanka is also seeking debt restructuring of its loans, mainly from China. 

(SAM)