Sri Lanka economic crisis: India’s $1 billion credit line extended by a year

Following detailed negotiations between the two nations, India has decided to extend the $1 billion credit line for Sri Lanka that is in the midst of an economic crisis. India decided to extend the credit line by a year, allowing the neighbour the much-needed back-up funds to pay for essential imports. 

The credit line is part of the $4 billion emergency assistance that was extended by India during Sri Lanka’s peak crisis time last year, and was scheduled to end in March. The funds were mostly used for medicines and food. 

Sri Lanka's Deputy Treasury Secretary Priyantha Rathnayake said that the credit line is extended till March 2024. The secretary said that there is about $350 million left of the credit line that can now be used as needed. The official said that since foreign exchange availability has increased in the market, the need has subsided since last year. 

In April last year, Sri Lanka’s reserves dropped to record lows, triggering its worst financial crisis since its independence from Britain in 1948. It struggled to pay for essential imports such as fuel, cooking gas, medicine and defaulted on its foreign debt. 

Sri Lanka has, meanwhile, secured a $3 billion bailout package from the International Monetary Fund in March, and has kicked off debt restructuring talks with key bilateral creditors India, Japan and China. Since the IMF bailout, the central bank kept interest rates steady in April. 

Meanwhile, Sri Lanka’s key inflation rate for April eased to 35.3 per cent from 50.3 per cent in March, showing signs of relief in the country. The Colombo Consumer Price Index reflected a reduction in food inflation to 30.6 per cent in April from 47.6 per cent in March, while non-food inflation reached 37.6 per cent.

Central bank Governor Nandalal Weerasinghe said that Sri Lanka’s inflation is projected to hit single digits by the end of December.

(With Reuters inputs)

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