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Colombo (AFP) – Cash-strapped Sri Lanka has secured a $1 billion line of credit from India to buy urgently needed food and medicine, officials said on Friday, as the IMF confirmed that he would discuss a possible bailout.
The South Asian nation is suffering its worst economic crisis since its independence in 1948, with crippling shortages of basic necessities and fears of defaulting on its foreign debt or asking bondholders to take a “cut of hair” on refunds.
India and Sri Lanka officially concluded the credit agreement on Thursday during Finance Minister Basil Rajapaksa’s visit to New Delhi, Treasury Secretary Sajith Attygalle told reporters in Colombo.
“India stands with Sri Lanka,” Indian Foreign Minister S. Jaishankar said on Twitter. “A billion dollar line of credit has been signed for the supply of essential products.”
The latest loan was in addition to another $500 million Indian credit line to help its island neighbor buy oil.
Meanwhile, the International Monetary Fund confirmed on Friday that it was considering President Gotabaya Rajapaksa’s surprise request on Wednesday to discuss a bailout.
“We will discuss with the authorities how best to help Sri Lanka move forward,” IMF spokesman Gerry Rice said in a statement to reporters in the capital.
Rajapaksa’s announcement that he would go to the IMF – a reversal from his previous position – increases the likelihood that Sri Lanka will seek to renegotiate some of its estimated $51 billion in foreign debt.
Rice said the IMF had previously stressed the urgent need for Sri Lanka to implement a “credible and coherent strategy to restore macroeconomic stability and debt sustainability.”
About $6.9 billion of Colombo’s debt must be repaid this year. Its foreign exchange reserves stood at around $2.3 billion at the end of February.
Earlier this year, Sri Lanka asked one of its major creditors, China, for help in deferring debt payments, but there has been no official response from Beijing yet.
© 2022 AFP