Sri Lanka in Crisis, Hopes for $1-Billion Lifeline From India


New Delhi: With Sri Lanka reeling under a severe financial crisis, its finance minister Basil Rajapaksa has reached out to India for a bailout in the form of a Line of Credit. Rajapaksa is on his second visit to India in four months.

The finance minister, along with Sri Lanka’s High Commissioner to India Milinda Moragoda, met Prime Minister Narendra Modi on Wednesday.

Sri Lanka is hoping for an additional $1-billion Line of Credit (LOC) from India. In February, the Export-Import Bank of India (Exim) had extended a LOC of $500 million for the purchase of petroleum products as Sri Lanka’s fuel stations were running dry. In all, the Exim Bank has extended 10 LOCs to the Sri Lankan government on behalf of the Indian government. This has taken the total value of LOCs to $2.18 billion, a release by Exim Bank had stated earlier.

Rajapaksha is slated to meet External Affairs Minister, Dr S Jaishankar later in the day. With a poor inflow of tourists and fast-depleting economic reserves, Sri Lanka has had to take initiatives like switching off the street lights at night to save power.

In a recent order, Rajapaksa has ordered that all street lights be turned off until the end of March.

According to government data, China accounted for about 10 per cent of Sri Lanka’s USD 35 billion foreign debts till April 2021. However, experts believe that China’s total lending could be much higher when taking into account loans to state-owned enterprises and the Sri Lankan central bank.

The country’s official reserves fell to USD 2.36 billion in January 2022 compared with USD 3.1 billion in December 2021. Colombo’s next big challenge is a USD 1 billion bond repayment due in July 2022. To emerge from this crisis, Sri Lanka’s most pragmatic option would be rescheduling its external debt. Delaying capital payments would create some space for the country to build up reserves and pay for critical imports including food.

(Photo: Supporters of Sri Lanka’s main opposition wearing masks of President Gotabaya Rajapaksa, Prime Minster Mahinda Rajapaksaand Finance and Minister Basil Rajapaksa during a protest.)