Sri Lanka’s Finance Minister Basil Rajapaksa signed a $1 billion credit line with India on Thursday to help ease crippling shortages of essential items, including fuel, food and medicine, officials said. 

“Neighborhood first. India stands with Sri Lanka,” Indian Foreign Minister S. Jaishankar said in a tweet.

“US$ 1 billion credit line signed for supply of essential commodities. Key element of the package of support extended by India,” he said.

Concluding his two-day official visit to New Delhi, Finance Minister Basil Rajapaksa today (17) witnessed the signing of the agreement pertaining to the Short-Term Concessional Loan facility of USD 1 billion extended by the Government of India to the Government of Sri Lanka through the State Bank of India.

The USD 1 billion loan facility, which formed the key component of the four-pillar economic cooperation arrangement agreed between India and Sri Lanka during Minister Rajapaksa’s visit to New Delhi in December last year, was extended to the Government of Sri Lanka for procurement of food, medicines and other essential items.

The signing ceremony was held at the Ministry of Finance in New Delhi this afternoon in the presence of Finance Minister Basil Rajapaksa, the External Affairs Minister of India Dr. S. Jaishankar and the Indian Finance Minister Smt. Nirmala Sitharaman. Managing Director of the State Bank of India Shri Ashwini Kumar Tewari and the Bank’s General Manager Shri Vinod Kumar were also present on this occasion.

Secretary to the Ministry of Finance S. R. Attygalle signed the agreement on behalf of the Government of Sri Lanka, with Deputy General Manager Shri Pushkar Jha signing on behalf of the State Bank of India.

Prior to the signing ceremony, Finance Minister Basil Rajapaksa was received jointly by the Finance and External Affairs Ministers of India for bilateral talks at the Finance Ministry in the North Block.

During the bilateral talks, the two sides agreed to set up a framework for short, medium and long-term economic cooperation between the two countries aimed at addressing Sri Lanka’s present economic challenges.

With this objective, the three Ministers agreed to stay in regular contact and a coordinating mechanism consisting of senior officials from the two countries was set up to maintain a regular dialogue.

Finance Minister Basil Rajapaksa was accompanied to this meeting by Sri Lanka’s High Commissioner to India Milinda Moragoda, Secretary to the Ministry of Finance S. R. Attygalle and Deputy High Commissioner of Sri Lanka to India Niluka Kadurugamuwa.

Sri Lanka’s foreign exchange reserves have fallen 70% in the past two years to about $2.31 billion, leaving it struggling to pay for imports.

The country will work with the International Monetary Fund (IMF) to find a way out of the crisis, President Gotabaya Rajapaksa said on Wednesday.

After meeting Indian Prime Minister Narendra Modi on Wednesday in New Delhi, Sri Lanka’s Finance Minister was expected to meet his Indian counterpart, Nirmala Sitharaman, this week to discuss the USD 1 billion loan that the Indian government agreed to provide, as well as the road map for how the funds will be utilised.

India has already provided a loan of USD 500 million for fuel purchases and a USD 400 million currency swap under the South Asian Association for Regional Cooperation (SAARC) facility. In addition to that, the government of India has provided a $500 million loan deferment for settlement to the Asian Clearing Union (ACU), in a move sought to help the island nation witnessing an exceptional economic crisis.

During his previous visit to New Delhi last year, Rajapaksa negotiated $1 billion in financial assistance from the Indian government. The financial aid has not been released yet while his meeting with Indian Finance Minister Sitharaman is largely likely to finalise the $ 1 billion emergency financial aid package. 

The Ministry of External Affairs on India stated that India has stepped up and pledged a whopping USD 2.415 billion to the island nation (of which $1 billion is yet to be released) to help overcome dire financial constraints caused by external debt payments and a lack of US dollars in the country for business.

--With Agencies Inputs