India on Tuesday extended a $500 million-Line of Credit (LOC) to Sri Lanka for urgent fuel imports, days after providing $900 million relief to the island nation facing one of its worst economic downturns.
“External Affairs Minister Dr. S. Jaishankar extended this critical support in his letter addressed to the Foreign Minister of Sri Lanka Prof. G.L. Peiris,” a statement from the Indian High Commission in Colombo said, of the emergency assistance Sri Lanka had sought from India to tide over its dollar crunch leading to a shortage of essentials, including fuel, medicines, and certain food supplies.
The announcement follows a virtual meeting between Mr. Jaishankar and Sri Lanka’s Finance Minister Basil Rajapaksa on Saturday, when they reviewed a $1.5 billion credit facility to help Sri Lanka augment its fast-draining foreign reserves, crucial to importing essentials food items, medicines, and fuel.
Of the $1.5 billion, a sum of $500 million was extended on Tuesday for fuel imports, the Indian mission said in its statement, noting: “These measures are in line with India’s commitment to stand with Sri Lanka, contribute to Sri Lanka’s economic growth and impart greater momentum to bilateral economic and commercial partnership.” The balance amount is expected soon, Colombo-based official sources said, pointing to a total $2.4 billion assistance from New Delhi, as the island battles a major economic crisis.
The LoC from India coincides with Sri Lanka’s central bank servicing a sovereign bond for $500 million on Tuesday, and also with reports on likely power outages owing to a shortage of fuel supply amid the persisting dollar crisis.
Meanwhile, delivering his policy statement at the first Parliamentary session this year on Tuesday, President Gotabaya Rajapaksa attributed much of the current economic distress to the pandemic, and the external loans taken by previous governments. “That is why we had to take unpopular decisions such as suspending the import of vehicles and restricting the import of various non-essential goods. In this manner, we have been able to control the total import expenditure for the last two years,” he said, amid Sri Lanka’s persisting balance of payments challenge. His speech made no mention of soaring living costs and shortage of essentials that are making headlines in the country.
Speaking of the money spent on fuel imports, Mr. Rajapaksa said about 20% of Sri Lanka’s annual import expenditure is allocated for oil imports. “When the total export earnings are less than $1,000 million a month, we have to spend about $350 million a month on oil alone,” he said.
