Amidst a deteriorating economic condition and growing political strife, Sri Lanka on March 17 signed a $1 billion credit line with India for the procurement of food, medicines and other essential items. Sri Lanka remains embroiled in economic crises after the country’s foreign exchange reserves hit an all-time low coupled with rising foreign debt.

On Thursday, the Government of Sri Lanka signed the agreement with the State bank of India during Sri Lankan Finance Minister Basil Rajapaksha’s two-day visit to India. While Sri Lanka had entered into similar low-interest, loan agreements with China, the country is reportedly being pushed into a debt trap. At this critical juncture, Sri Lanka has urged India for help and India has come to the rescue of its neighbour.

New Delhi has agreed to several economic arrangements with Colombo including:

A $1 billion (over Rs 7,593.31 crore) line of credit A currency swap arrangement of $400 million (over Rs 3,037.32 crore), and A debt deferral of $515 million (Rs 3,911.25 crore) for two months

Credit line to help Sri Lanka tackle economic woes

Apart from bolstering India-Sri Lanka ties, the $1 billion credit line will help Colombo mitigate damages caused by an unprecedented post-COVID economic crisis. The amount would help the island nation with the purchase of essential supplies like food items, pharmaceutical products and oil for Sri Lankan nationals, who are facing severe economic hardships after fall in the country’s foreign exchange reserves snowballed into shortages of essential items like fuel, cooking gas, medicine, and milk-powder.

Additionally, the Indian private sector has also shown interest in investing in sectors like hospitality, food processing, cement as well as pharmaceutical production. In the wake of the crises, Sri Lanka has also invited Indian Prime Minister Narendra Modi at the BIMSTEC Summit in Colombo at the end of this month to engage in bilateral talks.

The Sri Lankan authorities, on the issue of Tamil reconciliation, have also agreed with the Indian stand on the devolution of powers to the north and eastern part of the country. The President’s council in Sri Lanka has asked a committee of experts to submit a report with two months after arriving upon a consensus with the Sinhalese majority.