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Sri Lanka signed a $500 million credit line with India to import fuel on Wednesday, officials said, as the island nation seeks to stave off rolling power cuts amid a foreign exchange crisis that has hampered purchases of diesel for power plants, Reuters reports.
The Export-Import Bank of India (EXIM) will provide the credit line for purchasing petroleum products, India's High Commission in Sri Lanka's main city Colombo said on Twitter.
Sri Lanka is struggling with its worst financial crisis in years with reserves hitting $3.1 billion in December. The country has to repay about $4 billion in debt repayments this year. read more
It expects to receive another $1 billion credit line from India to purchase essential goods, including food and medicine, by the end of February or early March, Finance Minister Basil Rajapaksa said.
"Our priority is to get external debt on track this year. This fuel credit line will support our efforts," Rajapaksa told reporters. "We expect the second credit line of $1billion to come through by end of February or first week of March."
In total, Rajapaksa said Sri Lanka will need $30 billion for imports and debt repayments in 2022.
Rising global oil prices have worsened Sri Lanka's economic problems with spending on oil imports climbing to about $500 million per month. Sri Lanka and India began negotiations over the credit line to import fuel in August.
Sri Lanka will pay LIBOR+1.25per cent for the credit line, which will have a one year tenor, and can be subsequently renewed, Energy Minister Udaya Gammanpila told Reuters.
The government hopes to kick off 565,000 metric tonnes of imports from the first week of March and expects six petrol shipments and ten diesel shipments, he said.
"Given the seriousness of Sri Lanka's reserve situation this credit line will help but it is only increasing our indebtedness and not solving any problems," said economic analyst Murtaza Jafferjee of J.B. Securities.
Sri Lanka is also in talks with Pakistan for a $200 million credit line to buy rice, cement and medicines, Trade Minister Bandula Gunawardena told Reuters.
"We have also started talks with Australia for another $200 million credit line to purchase grains and other staples," he said. "The government's priority is to maintain reserves to repay our debt but also ensure there are no shortages of goods for citizens."