India today signed a USD 500 million Line of Credit (LOC) agreement with Sri Lanka to help them with the purchase of petroleum products, the Indian High Commission said.
Sri Lanka is struggling to overcome its worst financial and energy crisis in decades post-COVID.
The Agreement was signed by The Export-Import Bank (EXIM) of India and the Government of Sri Lanka (GOSL).
Treasury Secretary, S R Attygalle from the Sri Lankan side and Chief General Manager of EXIM Bank, Mr Gaurav Bhandari from the Indian side signed the agreement in the presence of the Minister of Finance of Sri Lanka, H.E. Basil Rajapaksa and the High Commissioner of India to Sri Lanka, H.E. Gopal Baglay.
“A friend in need is a friend indeed!! @IndiaEximBank signed the USD 500 million Line of Credit Agreement for purchase of petroleum products with Sri Lanka Treasury today in presence of the Finance Minister @RealBRajapaksa and High Commissioner @MFA Sri Lanka,” tweeted the Indian High Commission in Sri Lanka.
The credit line was under negotiations during the visit of the Minister of Finance to India in December 2021. It will ease pressure on the country’s dwindling reserves that had dipped to USD 3.1 billion by December 2021, according to the estimates of the Central Bank.
Recently, India provided Sri Lanka with foreign exchange support of over USD 900 million. India’s overall development assistance to Sri Lanka stands close to USD 4 billion.
The move came weeks after Sri Lanka’s Power Minister Gamini Lokuge said that Sri Lanka would hold talks with the Indian Oil Corporation’s local entity amid a severe foreign exchange crisis.
The Lanka IOC (LIOC), the Sri Lankan subsidiary of India’s oil major Indian Oil Corporation, has been in operation in Sri Lanka since 2002.
In recent weeks, Sri Lanka has been mulling different options to facilitate measures to prevent fuel pumps from going dry as the island nation faced an acute foreign exchange crisis. Sri Lanka’s Energy Minister Udaya Gammanpila had predicted fuel shortages in the country due to the inability to pay for imports.
When the crisis loomed, the government approached the IOC’s local operation LIOC to import fuel for the government. The LIOC had earlier declined the request as they too were affected by the shortage of foreign currency to import.
The country is also grappling with a shortage of almost all essentials due to a lack of dollars to pay for the imports. Additionally, power cuts are imposed at peak hours as the state power entity is unable to obtain fuel to run turbines.
The state fuel entity has stopped oil supplies as the electricity board has large unpaid bills. The country’s only refinery had to be shut down twice in November 2021, since it was unable to pay for imports.
Last month, the Indian government had announced a billion-dollar assistance package in addition to other balance of payment support to its neighbour.
