India Extends $1 Billion Credit Line for Sri Lanka by One Year

India has granted a one-year extension to its $1 billion credit line for Sri Lanka, providing the crisis-affected island nation with additional support for essential imports. Initially, the credit line, a component of India’s approximately $4 billion emergency assistance to Sri Lanka during the height of its financial crisis last year, was set to conclude in March.

Following negotiations, Sri Lanka’s Deputy Treasury Secretary, Priyantha Rathnayake, confirmed to Reuters on Tuesday that the credit line had been extended until March 2024. Rathnayake mentioned that approximately $350 million remains from the credit line, available for utilization as needed. However, he noted that the current foreign exchange availability in the market has reduced the urgency compared to last year.

The extension announcement coincides with an upcoming meeting of Sri Lanka’s creditor nations, scheduled for later on Tuesday, where discussions will center around coordinating the restructuring of the nation’s debt. Attention is now focused on whether China will participate in this meeting.

The online meeting, organized within a new framework established in Washington, DC in April, aims to provide a model for resolving debt challenges faced by middle-income economies. While Japan, along with India and France, initiated the launch and invited all bilateral creditors, including China, uncertainties remain about China’s participation.

Last month, France, India, and Japan introduced a common platform for talks among bilateral creditors to streamline the restructuring of Sri Lanka’s debt. Sri Lanka’s debt composition includes $7.1 billion owed to bilateral creditors, with China being the largest at $3 billion, followed by $2.4 billion to the Paris Club and $1.6 billion to India.

The government also faces the task of renegotiating over $12 billion in eurobonds with overseas private creditors and addressing $2.7 billion in other commercial loans. Sri Lanka has initiated discussions to restructure a portion of its domestic debt, aiming to finalize the deal by May.

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