Sri Lanka is negotiating with India to extend a $1 billion credit line by a few months, Reuters reported citing two sources.
According to the Reuters report, the sources said that the negotiation is underway as Sri Lanka tries to line up funds for the rest of the year while the International Monetary Fund (IMF) looks set to approve a $2.9 billion loan for it soon.
The sources and another person familiar with the matter have revealed that the credit line is due to expire on March 17 with Sri Lanka having used only about two-thirds of it, mainly for medicines and food.
The extension talks come as the economy improves and forex reserves rise for Sri Lanka, where huge protests took place last year amid widespread shortages of essentials after the COVID-19 pandemic hurt tourism and remittances while exposing low tax revenues.
Meanwhile, Reuters reported that a source at the Sri Lankan Finance Ministry has said that the government wanted to extend the credit line by 6-12 months because there was about $300 million of it left unused and that no agreement had been reached.
All the sources declined to be named ahead of an announcement.
Sri Lanka’s finance ministry and India’s foreign ministry did not immediately respond to requests for comment.
Sri Lanka’s central bank said on Tuesday the country’s official reserves had risen 4.5% to $2.22 billion in February from a month earlier.
President Ranil Wickremesinghe told parliament there were signs the economy was improving but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.
He said China, Sri Lanka’s biggest lender, extended support for the IMF programme on Monday, clearing the way for the loan.
The IMF said its board would meet on March 20 to review a preliminary staff-level agreement first signed with Sri Lanka in September. It said Sri Lanka had secured financing assurances from all major bilateral creditors.
China and India are Sri Lanka’s biggest lenders and both seek influence on the island located on a busy shipping route on the Indian Ocean. (NewsWire)
