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India decides to bail out cash-strapped Sri Lanka–likely to announce another $1 bn line of credit soon

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

India has almost finalized extension of another $1 billion line of credit to cash strapped Sri Lanka. Earlier during the month, New Delhi provided $500 to the island nation. This will help Colombo to somewhat tide over its immediate financial crunch. Colombo had sought a $1.5 billion credit line from India.

“The announcement could happen soon,” a person with direct knowledge told India Narrative. Sri Lanka’s Finance Minister Basil Rajapaksa is also expected to pay another visit to New Delhi to finalise the economic package, which will facilitate investments by Indian companies into the country. An increase in investments at this juncture will be welcome as Sri Lanka tries to revive its battered economy and acute cash crunch.     

The acute cash crunch has now led to shortage of fuel. According to reports, several fuel stations are now running without gas, causing severe disruption for the common citizens while forcing many petrol pumps to shut down.

The state owned Ceylon Petroleum Corporation with an outstanding debt of $3.5 billion is no longer in any position to raise new commercial loans.

“We have stopped going out because of the fuel shortage, when you set out to buy fuel for your vehicle, you are not sure whether you will get it. This uncertainty is unprecedented,” a resident of Colombo said.

Also read: Import restrictions hit Sri Lanka's retail sector, fear of job losses arises

In a bid to save energy, Colombo has also started imposing power cuts.

The ABC News said that Sri Lanka's Public Utilities Commission has decided to shut off the country's grid for four and a half hours on Wednesday after two hours of power cuts on Tuesday and Monday. Quoting officials, the news organization said that electricity will be switched off on a rotating basis between regions from 8:30 a.m. to 10:30 p.m.

Sri Lankan economy is currently facing the twin challenge of fast eroding foreign exchange reserves and surging inflation. Sri Lanka’s President Gotabaya Rajapaksa declared a state of economic emergency in September last year.

Sri Lanka’s economic crisis has stemmed from depleting foreign exchange reserves. The economy of the tourism dependent island nation was battered by the stringent Covid restrictions and lockdowns.

Citizens are already facing a huge shortage of essential items including food items, milk and even medicines.

Sri Lanka's total debt burden for this year is $6.9 billion. The dwindling economic situation in Sri Lanka is gradually pushing the island nation on the brink of bankruptcy.