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Sri Lanka extends the credit line with India by $200mln for fuel

  • Date posted : May 06, 2022
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Sri Lanka extends the credit line with India by $200mln for fuel

India is the third-largest petroleum product exporter in the world. And Sri Lanka has been an important partner. Energy is one of the most important needs of the human race. In the modern world, it has become the most vital resource for any country. That's why India has started a new trade where it exports fuel to nearby countries. India has made a big step on the international front by exporting fuel to Sri Lanka.

What is the new phase in the India-Sri Lanka relationship?

Sri Lanka extends the credit line with India by $200mln for fuel. Sri Lanka has extended its credit line with India for another billion dollars for the purchase of fuel.

The agreement came after the pandemic because there is a shortage of revenue after Gotabaya Rajapaksa's government imposed steep tax cuts. Now, the nation ow also critically short of foreign exchange and has approached the International Monetary Fund for an emergency bailout. They requested the extension of the credit line and assured India that it would not hamper bilateral relations.

What are the current statistics?

  • Sri Lanka extended the credit line with India for the purchase of fuel by $200 mln. MoS Petroleum, Sri Lanka, and MoS External Affairs, India met to further deepen Indo-Lanka relations in the fuel sector.

  • Wijesekera revealed that Sri Lanka has used $400 million, on multiple shipments in April, of the $500 million credit line extended by India earlier this year.

  • Wijesekera said,” Two fuel shipments will be paid for from the remaining funds in May. The Indian credit line was extended by $200 million recently and this will be utilized for four shipments in May. 

  • Discussions are going on for a further $500 million with India so in total, the credit line will be $1.2 billion," Wijesekera said.

  • However, Sri Lanka is facing issues with making payments for fuel imports as the state-run Ceylon Petroleum Corporation (CPC) owes $235 million for shipments already received. Whereas about $500 million more will be required to pay for letters of credit maturing over the next six weeks.

  • Sri Lanka will also need dollars to pay for crude oil shipments to supplement imports from India.

  • During this time, the island is facing a serious crisis and its overall inflation surged to nearly 30% in April from 18.7% recorded in March.

What caused this huge shift in demand for fuel?

  • Sri Lanka is facing issues and stuck in an unprecedented economic turmoil since its independence from Britain in 1948. The crisis is caused in part by a lack of foreign currency. The country has a bad condition and is not in the state to afford to pay for imports of staple foods and fuel. All this leads to acute shortages and very high prices.


  • Sri Lanka needs around $4 billion to get over the mounting economic woes, and meetings with international institutions such as the World Bank as well as countries like China and Japan for financial assistance have been going on. Sri Lanka is facing short of foreign exchanges for importing essential goods.

  • The lockdowns impacted the informal sector of the nation which nearly accounts for around 60% of the total workforce.

  • There is a lot of disturbance and mismanagement in government finances and ill-timed tax cuts that cause an economic crisis.

  • Besides the impact of the Covid-19 pandemic, huge debt, fall in foreign reserves, inflation, and devaluation of the currency have impacted the economic growth of the country.

  • The neighboring countries like India, China, and Bangladesh are coming in support of Sri Lanka in this difficult time.

  • Sri Lanks also seeking help from International Monetary Fund (IMF).

  • Tourism is one of the important reasons for earning foreign exchange but the sudden pandemic impacted the country's economic growth.

  •  Dhananath Fernando, chief operating officer of Colombo revealed that the country is facing an economic crisis due to the shortage of dollars not because of any commodity.

  • As per the official reports, the $4 billion debt includes $1 billion in international sovereign bonds.


 How the crisis of fuel shortage look like?


  •  The economic crisis impacted the availability of basic needs i.e., fuel. Thousands of people queued up for fuel and people initiated protests at the petrol stations.

  • Fuel shortages made it difficult for the country to handle people. Sri Lanka ordered the troops to the police station to manage the public.

  • Fuel shortage leads to the power cut for hours in the country.

  • The prices of fuel prices have also been increased frequently with petrol prices by 92 percent and diesel by 76 percent.

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