Monday 23 May 2022
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Sri Lanka thanks India, seeks another $ 1 billion credit

Sri Lanka faces an economic crisis as it struggles to pay for essential imports of food and fuel after a 70% drop in foreign exchange reserves since January 2020 led to a currency devaluation and efforts to seek help from global lenders.

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Economic crisis-hit Sri Lanka has sought an additional credit line of $ 1 billion from India to import essentials amid its worst economic crisis in decades, sources said today, as the Indian foreign minister began talks with the government in Colombo. Sri Lanka faces an economic crisis as it struggles to pay for essential imports of food and fuel after a 70% drop in foreign exchange reserves since January 2020 led to a currency devaluation and efforts to seek help from global lenders.

Jaishankar landed in Sri Lanka on Monday, 28 March, to hold bilateral talks with Sri Lanka’s top leadership and attend the seven-nation Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Summit. EAM Jaishankar called on Sri Lankan President Gotabaya Rajapaksa, who expressed his gratitude to India for extending financial assistance to the island nation to deal with its economic crisis.

External Affairs Minister S Jaishankar arrived in Colombo on 28 March as part of his three-day visit to Sri Lanka to explore the possibilities of further expansion of bilateral engagements with one of the key maritime neighbours of India.

S Jaishankar arrived in Colombo on March 28 as part of his three-day visit to Sri Lanka to explore the possibilities of further expansion of bilateral engagements with one of the key maritime neighbours of India.

In a statement, the Sri Lankan President’s office said, “Dr Jaishankar is in Sri Lanka to attend the 5th BIMSTEC Summit which begins today in Colombo.”

“Expressing pleasure over the visit of Dr Jaishankar, the President thanked India for providing a Credit Line of USD 1 billion for the importation of essential commodities including food and medicine,” the statement read.

The statement read further, “A number of commemorative events including the issuance of commemorative coins and a stamp have been organised to mark the 75th anniversary of diplomatic relations between Sri Lanka and India this year.”

New Delhi has indicated it will meet the request for the new credit line, to be used for importing essential items such as rice, wheat flour, pulses, sugar and medicines, said one of the sources briefed on the matter.

“Sri Lanka has requested an additional $ 1 billion credit line from India for imports of essentials,” the second source said. “This will be on top of the $ 1 billion credit line already pledged by India.”

Both sources insisted on their anonymity, as the information is classified.

The finance and foreign ministries of Sri Lanka, as well as India’s foreign ministry, did not immediately respond to requests seeking comment.

Finance Minister of Sri Lanka Basil Rajapaksa signed the earlier credit line of $ 1 billion in the Indian of New Delhi this month to help pay for critical imports by the Indian Ocean island nation.

Following the meeting with Sri Lankan President Rajapaksa, Jaishankar tweeted, “Pleased to call on Sri Lankan President Gotabaya Rajapaksa. Reviewed various dimensions of our close neighbourly relationship. Assured him of India’s continued cooperation and understanding.”

Jaishankar’s visit to Colombo comes at a time when Sri Lanka is facing its all-time worst foreign exchange crisis after the pandemic hit the island nation’s earnings from tourism and remittances.

In February, Sri Lanka’s inflation hit 15.1%, with food inflation soaring to 25.7%.

Earlier this month, Sri Lanka’s central bank floated the rupee, causing the currency to plummet by more than 30% to trade at about 275 rupees per US dollar.

With the economic crisis deepening in Sri Lanka, the prices of essential commodities, including milk and rice, have gone through the roof. Milk powder prices increased by 250 rupees ($ 0.90) for a 400 g pack on Saturday, prompting restaurant owners to raise the cost of a cup of milk tea to 100 rupees.

People are being forced to stand in long queues to recharge fuel. Power supply in various regions of the country has also been hit hard.

India, since mid-January, has provided economic relief in the form of currency swaps, deferred repayments and dedicated credit lines for the purchase of fuel and essential imports.

In February, India extended a $ 500 million line of credit to Sri Lanka to help it purchase petroleum products as the island nation has been reeling under a severe foreign exchange and energy crisis

Recently, in March, India announced a $ 1 billion line of credit to Sri Lanka as part of its financial assistance to help the island nation deal with its economic crisis.

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