India has decided to extend a $1 billion credit line to Sri Lanka for another year as the country continues to battle an economic crisis. The funds were initially part of a $4 billion emergency assistance package that India extended to Sri Lanka during its peak crisis period last year, which mostly went towards the purchase of essential items such as food and medicine. The credit line was scheduled to end in March, but it has now been extended until March 2024.
Sri Lanka’s Deputy Treasury Secretary Priyantha Rathnayake confirmed that there is still $350 million left of the credit line that can be used as needed. However, he noted that the need for funds has subsided since foreign exchange availability has increased in the market.
Sri Lanka experienced its worst financial crisis since its independence from Britain in 1948 last year when its reserves dropped to record lows. The country struggled to pay for essential imports such as fuel, cooking gas, and medicine, leading to defaults on foreign debt. In March, Sri Lanka secured a $3 billion bailout package from the International Monetary Fund and has since begun debt restructuring talks with key bilateral creditors India, Japan, and China. The central bank has kept interest rates steady in April after the IMF bailout.
The country’s key inflation rate for April eased to 35.3 per cent from 50.3 per cent in March, with a reduction in food inflation to 30.6 per cent and non-food inflation reaching 37.6 per cent. Central bank Governor Nandalal Weerasinghe has projected that Sri Lanka’s inflation rate will hit single digits by the end of December