2 January , 2022 Fdiindia
Sri Lanka Asks India for a $1.5 Billion Credit Line to Save Its Economy
Governor of Lankan Central Bank Ajith Nivard Cabraal has said that the Sri Lankan administration has requested India for a total of $1.5 billion in credit line, of which $1 billion will be for essential imports and $500 million for petroleum imports.
He said that this was decided upon during the recent India visit of Sri Lankan finance minister Basil Rajapaksa to seek financial aid from India to help his country overcome its ongoing crisis.
He added that negotiations are underway for a $400 million swap facility from the Reserve Bank of India as per the SAARC Finance Arrangement. Additionally, the two nations also discussed other investment avenues during the finance minister’s visit.
“There are many investment opportunities on offer for Indian corporates, and the proximity, well-educated workforce, and strong logistical links will be the added advantages. Further, given Sri Lanka’s strategic geographical location and strong maritime connectivity, Sri Lanka would be a springboard for Indian multinationals to maximize their strengths to expand globally, as well,” Cabraal said.
India has been among the top three sources for foreign direct investment (FDI) inflow into Sri Lanka in the last few years. Sri Lanka saw an FDI inflow of $80.4 million in the first half of 2021. It was close to $87.7 million in 2020 and $139 million in 2019.
Cabraal said that Sri Lanka has sought financial assistance from India through Government-to-Government facilities, Central Bank-to-Central Bank facilities, and open direct investments.
“The expected cooperation is likely to help both countries to continue the large volumes of trade and financial flows that have been observed over the years,” he said.
Sri Lankan economy is currently reeling under a crisis due to the COVID aftermath and heavy borrowing from China, resulting in huge debts.
“In July 2020, the Central Bank of Sri Lanka and the Reserve Bank of India entered into a bilateral currency swap agreement of US dollars 400 million under the Framework on Currency Swap Arrangement for South Asian Association for Regional Cooperation (SAARC) countries for 2019 – 2022, which was fully settled by Sri Lanka in February 2021. This swap facility helped Sri Lanka to maintain sufficient short-term foreign exchange liquidity while managing the international reserves at comfortable levels, and we are hoping to renew that facility shortly, once again,” Cabraal said, reiterating the Indian assistance received by Sri Lanka during the pandemic.