India and the World Bank are considering $2 billion in bridge financing amid economic crisis, Sri Lanka says

Sri Lanka’s finance minister said on Friday that its neighbor India and the World Bank are considering providing about $2 billion in bridging financing to allow the country to continue essential imports. The country of 22 million people is struggling to pay for its imports after a sharp drop in foreign exchange reserves that has led to currency depreciation and rising inflation.

Sri Lanka, which has $51 billion in external credit, is working on a broader plan to secure funds to help it through its worst economic crisis, with ongoing power outages and fuel and medicine shortages fueling protests across the country triggered.

The government has asked some creditors to restructure their debt and has also turned to China, Japan and the Asian Development Bank, among others, for help, Sabry said.

India has already agreed to double an existing $500 million fuel credit line and defer about $1.5 billion in import payments Sri Lanka has to make to the Asian Clearing Union. It has also extended the maturity of a $400 million swap granted in January, India’s High Commission said on Friday.

“Discussions with the World Bank have also been very positive,” Sabry said, adding, “Over the next four weeks to six months, we expect them to come up with about $500 million, some of which will be used for direct cash transfers to the poor.”

Sabry is in Washington leading a Sri Lankan delegation to negotiate a program with the International Monetary Fund (IMF). He said talks for an Extended Fund Facility (EFF) have begun but Sri Lanka needs $3-4 billion in bridge funding before a program is completed.

“We have a three-pronged strategy. First, to launch an IMF program, second, to secure bridge financing, and third, to get Sri Lanka back on track for growth in about a year,” he said.

Sabry said the government hopes to appoint financial advisors and an international law firm to begin formal debt negotiations with creditors in the next 10 to 15 days.

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