• Friday, April 19, 2024

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Sri Lanka gets urgent $500m Indian loan to pay for oil

FILE PHOTO: Sri Lankan supporters of the opposition People’s Liberation Front (JVP) shout slogans during a protest against the agreement with India to develop the Trincomalee oil tank farm project, in Colombo on January 19, 2022. (Photo by -/AFP via Getty Images)

By: Pramod Thomas

SRI LANKA was handed temporary relief from energy shortages and rolling blackouts with a $500 million loan from India to finance urgent oil purchases for the cash-strapped nation.

The island’s economic woes have left thermal power generators unable to keep the lights on and disrupted transport networks, as traders run desperately low on foreign currency to fund imports.

Frequent breakdowns at a huge coal power plant have compounded unannounced electricity cuts and households are also struggling to source cooking gas and kerosene.

Officials said a formal agreement was being signed on Wednesday after two weeks of talks, in addition to a recent $915m in foreign exchange support.

An Indian diplomat said talks were underway on another $1 billion credit line to fund urgently needed food and medicine imports from India.

“The $500m is for Sri Lanka to purchase petroleum products from Indian suppliers,” the official said.

Sri Lanka’s economy is also seeing a scarcity of rice, automotive parts and cement, with supermarkets forced to ration some staple foods.

The shortages pushed food inflation to a record 25 per cent last month.

Tourism is a key foreign exchange earner for Sri Lanka but the sector has collapsed in the wake of the Covid-19 pandemic.

The government has shut overseas diplomatic missions to save money and a broad ban on imports has been in effect for nearly two years to conserve foreign currency.

Three international rating agencies have downgraded the island since late last year on fears it may not be able to service its $35bn sovereign debt.

Sri Lanka has sought more loans from Beijing to help repay its existing Chinese debt, which accounts for about 10 per cent of the country’s external borrowings.

Authorities have borrowed heavily from China for infrastructure projects in the past, some of which ended up as costly white elephants.

(AFP)

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