India to provide fresh $1 billion line of credit to Sri Lanka

Tags: International News

The Government of India has agreed to provide another USD 1 billion line of credit to Sri Lanka. An agreement was signed between the State Bank of India and Sri Lankan government on 17 March during the visit of the Sri Lankan finance minister's Basil Rajapakse to India.

• The loan has been given to Sri Lanka to buy food, medicine and other essential items.  

• This is the second visit of the Sri Lanka Finance minister’s Basil Rajapakse who is the brother of the Sri Lankan President Gotbaya Rajpakse and the Prime Minister Mahinda Rajapakse, since December 2021.

• Sri Lanka's economy is facing a huge economic crisis and ever increasing  foreign debt. It has to repay USD 7 billion of foreign loans this year and it is facing an unprecedented food and fuel shortage. It is dependent on imported food and fuel and it has almost no foreign exchange reserves to buy food or fuel. Almost 10% of its external debt is to China.

• The main source of foreing exchange earner for the Sri Lankan economy is tourism. Due to covid situation there has been no flow of international tourists to Sri lanka in the past two years.

Helping Hand of India 

The government of India has provided  loans to Sri Lanka to deal with its economic crisis, under its neighbourhood first policy. During Basil Rajapakse's visit to India on December 21, India agreed to help Sri Lanka under its neighbourhood policy. The decision included a four pillar initiative to help Sri Lanka.

The four­ pillar initiative comprises-

• India will provide loans to Sri Lanka to enable it to purchase food, medicines and fuel from India.

• A currency swap agreement to deal with Sri Lanka's balance of payment issues, 

• An “early” modernisation project of the Trincomalee oil farms that India has been pursuing for several years, and

• Sri Lankan commitment to facilitate Indian investments in various sectors

Excluding this loan amount of USD 1 billion, India has provided USD 1.4 billion support to Sri Lanka in 2022. It has provided USD 500 million for import of fuels, deferred repayment of USD 500 billion debt repayment and extended a  $400-million RBI currency swap facility.

Fact File Sri Lanka 

• Officially it is called the Democratic Socialist Republic of Sri Lanka .

•  It is a country in the Indian Ocean  and is separated from India by the Palk Strait.

• It was called Serendib by the Arabs  and the Europeans called it Ceylon .

• It officially became Sri Lanka in 1972.

• It became independent in 1948 from Britain.

Capital : Sri Jayewardenepura

President : Mahinda Rajapakse 

Currency : Sri Lankan Rupee