India will extend $1.5 billion in additional lines of credit to Sri Lanka, Indian External Affairs Minister S Jaishankar confirmed on Saturday, assuring the island country of its continuous “support in all possible ways for overcoming economic and other challenges”. Sri Lanka has been struggling to import food, fuel, and other essentials as it faces a severe forex crisis.

Talks are going on two lines of credit, first, $1 billion for imports of food, essentials, and medicine; second, $500 million for import of fuel from India, the Indian Ministry of External Affairs (MEA) confirmed in a statement released on Saturday. 

This is in addition to the $900 million facilities that New Delhi had offered last week. [Read More]

Indian External Affairs Minister S Jaishankar also held a virtual meeting on Saturday with Basit Rajapaksa, Sri Lanka’s finance minister, discussing the ongoing and future assistance to the country. Basit, who is one of the most powerful ministers in President Gotabaya Rajapaksa’s Cabinet, had earlier visited India in November-December last year.

“India has always stood with Sri Lanka and will continue to support Sri Lanka in all possible ways for overcoming the economic and other challenges posed by COVID-19 pandemic,” Jaishankar was quoted as saying by the statement released by MEA.

He added, “As close friends and maritime neighbors, both India and Sri Lanka stand to gain from closer economic interlinkages.”

With supplies of fuel, essentials, and medicine running short, Sri Lanka is at the risk of defaulting on its debt obligations this year. The severity of the crisis has reached a level where several power plants in the country are operating below their operational capabilities in the absence of fuel.

Fitch Ratings and Standard and Poor’s both have recently downgraded the country’s sovereign rating to “CCC”, warning of a potential default in absence of any external funding. [read more]

Basit Rajapaksa appreciated India’s gesture of assistance to the country and welcomed "Indian investments in Sri Lanka in a number of important spheres including ports, infrastructure, energy, renewable energy, power, and manufacturing.”
 

Significantly, New Delhi loosened the purse strings for Sri Lanka after both countries signed the Trincomalee Oil Farm deal, a strategically located oil storage tank in the eastern part of the country, wherein Colombo agreed to extend the lease of 14 oil tanks to India for another 50 years. [Read More]

Almost 61 tanks will be jointly developed by the two nations as per the deal. In the virtual meeting on Saturday, both Jaishankar and Rajapaksa noted the Trincomalee oil farm deal will “boost the confidence of investors, apart from enhancing Sri Lanka’s energy security.”

Sri Lanka is also in talks for similar assistance from China, which had recently offered all possible help. Wang Yi, Chinese State Councilor and Foreign Minister, had recently visited Sri Lanka. During the visit, Colombo had sought restructuring of its debt as relief measures. [read more]

Earlier this week, Central Bank Governor Ajith Nivard Cabraal had said they were in talks with the Chinese for additional loans. [read more]