Sri Lanka secures another Indian loan and discusses rescue packages with IMF

Troubled Sri Lanka secured a $1 billion credit line from India to buy food and medicines, authorities said on Friday, while the IMF confirmed discussions about the possibility of a bailout.

India and Sri Lanka formally finalized the loan deal on Thursday during Finance Minister Basil Rajapaksa’s visit to New Delhi, Finance Minister Sajith Attygalle told reporters in Colombo. “India stands with Sri LankaIndian Foreign Minister S. Jaishankar tweeted: “a $1 billion credit line was signed for the delivery of essential supplies.This loan comes on top of an earlier $500 million line of credit that India extended to its tiny neighbor so it can receive oil shipments.

The IMF is examining the possibility of a rescue package

For its part, the International Monetary Fund (IMF) confirmed Friday that it was reviewing President Gotabaya Rajapaksa’s surprise request Wednesday for bailout talks. “We will be discussing with the authorities how we can best help Sri Lanka in the futureIMF spokesman Gerry Rice said in a statement to reporters in Colombo. Gotabaya Rajapaksa’s announcement that he would turn to the IMF marks a reversal and increases the likelihood that Sri Lanka will seek to renegotiate part of its estimated $51 billion external debt. According to Gerry Rice, the IMF has already stressed the urgent need for Sri Lanka tocredible and coherent strategy to restore macroeconomic stability and debt management.»

About $6.9 billion of Colombo’s debt service is due this year. The South Asian island is going through its worst financial crisis since gaining independence from Britain in 1948. The Islamist Easter attacks of 2019, followed by the Covid-19 epidemic a year later, had disastrous consequences for Sri Lanka, depriving that country of 22 million of its tourist crowds Lucky strike, the most important supplier of foreign exchange. Sri Lanka needs nearly $7 billion to service its external debt this year, but its foreign exchange reserves were just over $2 billion at the end of January, barely enough to fund a month of debt. International rating agencies have downgraded Sri Lanka’s rating for fear of a default.

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