India extends $1bn credit line for Sri Lanka by a year

The credit line is part of about $4bn in emergency assistance extended by India during the peak of Sri Lanka’s financial crisis last year.

Sri Lanka economic crisis
A labourer carries a sack of onions at a market in Colombo [File: Ishara S Kodikara/AFP]

India has extended a $1bn credit line for Sri Lanka by one year, a Sri Lankan official says, giving the crisis-hit island nation a backup infusion of dollars for essential imports.

The credit line, part of about $4bn in emergency assistance extended by India during the peak of Sri Lanka’s financial crisis early last year, was scheduled to end in March.

After the negotiations, the credit line was extended until March 2024, Sri Lanka’s Deputy Treasury Secretary Priyantha Rathnayake told the Reuters news agency on Tuesday.

“There is about $350m left of the credit line that can be utilised as needed,” he told Reuters.

“However, given the increase of foreign exchange availability in the market, the need is not as keen as it was last year.”

The announcement came as Sri Lanka’s creditor nations are preparing for their first meeting later on Tuesday to coordinate the restructuring of the nation’s debt. The focus is turning to whether China will attend.

The online meeting will be held within a new framework launched in Washington, DC in April that creditors hope will serve as a model to resolve the debt difficulties of middle-income economies.

Japan, which initiated the launch together with India and France, has invited all bilateral creditors, including the largest, China, though Japanese officials said it was uncertain whether it would join the talks.

The reason was not immediately clear, although one of the officials felt Beijing could be weighing the merit of participation.

Last month, France, India and Japan unveiled a common platform for talks among bilateral creditors to coordinate the restructuring of Sri Lanka’s debt.

Sri Lanka owes $7.1bn to bilateral creditors, government data show, with $3bn owed to China, followed by $2.4bn to the Paris Club and $1.6bn to India.

The government also needs to renegotiate more than $12bn of debt in eurobonds with overseas private creditors, and $2.7bn on other commercial loans.

Sri Lanka has kicked off talks to rework part of its domestic debt and aims to finalise the deal by May.

Source: News Agencies