Crisis-hit Sri Lanka seeks further $1B credit line from India

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Sri Lanka has sought an additional credit line of $1 billion from India to import essentials amid its worst economic crisis in decades, two sources said on Monday, as the Indian foreign minister held talks with the neighbouring island’s government.

The country of 22 million people is struggling to pay for essential imports after a 70% drop in foreign exchange reserves in two years led to a currency devaluation and efforts to seek help from global lenders.

Fuel is in short supply, food prices are rocketing and protests have broken out as Sri Lanka’s government prepares for talks with the International Monetary Fund (IMF) amid concerns over the country’s ability to pay back foreign debt.

New Delhi has indicated it would meet the request for the new 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 declined to be identified as the discussions were confidential.

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

India’s support for the roiled Sri Lankan economy comes after previous administrations led by the powerful Rajapaksa family drew the island nation closer to China during the past decade, leading to unease in New Delhi.

Sri Lanka-India ties have improved in recent months, and Sri Lankan Finance Minister Basil Rajapaksa travelled to New Delhi in March to sign the earlier credit line of $1 billion to help pay for critical imports.

(Reuters)