India extended a $1 billion credit facility to Sri Lanka

India extended a $1 billion credit facility to Sri Lanka to assist the island nation through its worst foreign exchange crisis and enable it to procure food, medicines, and essential items.

Key-Points

An agreement to this effect was signed between the State Bank of India and the government of Sri Lanka, during a visit of the country’s Finance Minister Basil Rajapaksa to New Delhi. “Neighbourhood first.

In 2022, so far India has extended $1.4 billion support to Sri Lanka, through a $400-million RBI currency swap, deferral of a $0.5 billion loan, and another half a billion as a line of credit for the country to sustain its essential fuel imports.

Sri Lanka is facing its worst financial crisis and had declared an emergency in August last in the face of a crippling foreign exchange crunch. The nation is still facing significant fuel and gas shortages, and high inflation in essential goods as well as food items.

Sri Lanka is due to repaying foreign debt totaling nearly $7 billion this year, amid a persisting shortage of dollars to import food, medicines, and other essentials. It has already sought China’s help to restructure its loans that amount to 10% of its total foreign debt.

Much of Sri Lanka’s external borrowings are through sovereign bonds in the international money market.

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