India extends $1 billion credit line to Sri Lanka by another year

India on Tuesday extended its $1 billion credit line to Sri Lanka by another year to help the island nation hit hard by an unprecedented economic crisis procure much-needed food, medicine and other essential items.

An agreement was signed between the State Bank of India (SBI) and the Sri Lankan government for a $1 billion credit facility in March last year. India extended the credit line to Sri Lanka at the height of the country's economic crisis.

"India reaffirms its commitment to the people of Sri Lanka. The Amendment Agreement signed in the presence of Hon.Minister @ShehanSema today will enable Sri Lanka to use the $1 billion Indian credit facility for the procurement of medicine, food, and other essentials for one more year," the Indian High Commission in Sri Lanka tweeted.

"Beyond the original duration, that is, till March 2024. The facility was extended by India through @TheOfficialSBI in response to a specific request from GOSL and forms a part of the multi-pronged assistance of $4 billion provided by India last year," it said.

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Since last year, the credit facility has been used for urgent procurement of fuel, medicine, food items and industrial raw materials, as per the requirements and priorities of Sri Lanka.

India extended multi-pronged assistance of about $4 billion to Sri Lanka last year, through multiple credit lines and currency support, in line with India’s ‘Neighbourhood First’ policy.

India’s continued support to Sri Lanka is a testament to "our abiding commitment to stand with the government and the people of Sri Lanka towards early economic stabilisation and recovery," the Indian High Commission said.

Sri Lanka was hit by an unprecedented financial crisis in 2022, the worst since its independence from Britain in 1948, due to a severe paucity of foreign exchange reserves, sparking political turmoil in the country which led to the ouster of the all-powerful Rajapaksa family.

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Meanwhile, Sri Lanka announced on Tuesday that it has commenced the preliminary work to resume the abandoned Japan-funded Light Rail Transit (LRT) project.

The cabinet approved President Ranil Wickremesinghe's proposal to resume the project. Wickremesinghe visited Japan last week.

"Due to the stopping of several agreements and proposals suddenly, President Wickremesinghe went to Japan after creating the background to clear some of the worries we have,” Cabinet spokesman and minister Bandula Gunawardena told reporters.

Former President Gotabaya Rajapaksa unilaterally cancelled the $1.5 billion LRT project and the Colombo Port’s East Container Terminal (ECT) projects in 2021. Japan agreed to fund the LRT project while also showing interest in the ECT project along with India and Sri Lanka.