India, Sri Lanka Review Progress in Extending Loans Worth $1.5 Billion

NEW DELHI: India and Sri Lanka on Saturday reviewed the progress in extending loans worth a total of $1.5 billion to the island nation for emergency purchases of food, medicines and fuel to tide over an economic crisis.

The matter figured in a virtual meeting between external affairs minister S Jaishankar and Sri Lankan finance minister Basil Rajapaksa, who visited New Delhi last month to discuss a four-point financial assistance package.

Sri Lanka has been grappling with a severe debt and foreign exchange crisis, which has been exacerbated by a downturn in tourist arrivals because of the Covid-19 pandemic. Analysts believe the rapidly depleting foreign exchange reserves could result in a default on external debt.

Following a meeting between Indian envoy Gopal Baglay and Sri Lanka’s Central Bank governor Ajith Nivard Cabraal in Colombo on Thursday, India extended a Saarc currency swap facility of $400 million and deferred the payment of $515.2 million to the Asian Clearing Union (ACU) by two months to assist Sri Lanka.

At their meeting, Jaishankar and Rajapaksa “reviewed the progress in extending Indian credit facility of $1 billion for importing food, essential items and medicine and $500 million for importing fuel from India”, the external affairs ministry said in a statement. Jaishankar tweeted the two sides discussed the “early realisation” of these loans.

The ministers “positively noted” the extension of $400 million under the Saarc currency swap arrangement and deferral of the ACU settlement of $515.2 million, the statement said.

Jaishankar also tweeted that India will be a “steadfast and reliable partner of Sri Lanka”. He said he assured Rajapaksa that India will take up initiatives to support Sri Lanka at this important juncture with other international partners.

The statement said India “has always stood with Sri Lanka, and will continue to support Sri Lanka in all possible ways for overcoming the economic and other challenges posed by Covid-19 pandemic”. It added, “As close friends and maritime neighbours, both India and Sri Lanka stand to gain from closer economic inter-linkages.”

Both ministers noted that recent steps taken by the Sri Lankan government for jointly modernising the Trincomalee oil tank farm will boost the confidence of investors and enhance Sri Lanka’s energy security. They agreed to remain in touch for guiding mutually beneficial economic cooperation.

Rajapaksa recalled India’s longstanding cooperation with Sri Lanka and “deeply appreciated the gestures of support”, the statement said. He welcomed Indian investments in several important spheres, including ports, infrastructure, energy, renewable energy, power and manufacturing, and assured Jaishankar that an environment conducive to investments will be provided by Sri Lanka.

Last week, Sri Lanka signed a deal with a subsidiary of Indian Oil Corporation for the long-gestating project to refurbish the British era Trincomalee oil farm, an 850-acre storage facility with a capacity of almost one million tonnes. State-owned Sri Lanka Ports Authority and Adani Group finalised a deal last year to develop the west container terminal at Colombo port.

Jaishankar also took up the issue of Indian fishermen detained in Sri Lanka, and urged Colombo to ensure their early release as a humanitarian gesture.

India’s moves to extend financial aid to Sri Lanka come close on the heels of a visit to Sri Lanka last week by Chinese foreign minister Wang Yi, who said in Colombo that no “third party” should interfere in the China-Sri Lanka relationship. A large part of Sri Lanka’s outstanding debt is held by China, which has extended soft loans worth billions of dollars that some experts say have put the island nation in a debt trap.

During a meeting with Wang, President Gotabaya Rajapaksa called on China to restructure debt repayments as a solution to the economic crisis. He also sought a concessional trade credit scheme for imports from China.