Governor of Lankan Central Bank Ajith Nivard Cabraal revealed, Sri Lanka has sought a $ 1 billion credit line for essential imports and a $ 500 million credit line for petroleum imports from India to tide over the economic crisis.
During the recent visit by the Lankan Finance Minister Basil Rajapaksa to India to seek a financial package, Lanka has sought a $ one billion credit line for essential imports and a $ 500 million credit line for petroleum imports, Cabraal told ET in an exclusive interview from Colombo.
Discussions are in progress for a $ 400 million swap facility under the SAARC Finance Arrangement from the Reserve Bank of India, he further informed. In addition, other investment opportunities were also discussed during that visit, Cabraal informed. “There are many investment opportunities on offer for Indian corporates, and the proximity, well-educated workforce, and strong logistical links will be the added advantages. Further, given Sri Lanka’s strategic geographical location and strong maritime connectivity, Sri Lanka would be a springboard for Indian multinationals to maximize their strengths to expand globally, as well.”
Indian support is needed in terms of Government-to-Government facilities, Central Bank-to-Central Bank facilities, and open direct investments, Cabraal informed. “The expected cooperation is likely to help both countries to continue the large volumes of trade and financial flows that have been observed over the years.”
Sri Lanka, going through an economic crisis following Covid and mounting debt due to heavy borrowing from China, had reached out to India to boost its sagging economy. India recently bailed out Lanka with fertilizers for the island’s farmers after China-made fertilizers had to be rejected on grounds of quality.
ET had reported earlier this month that India is working out a package on an urgent basis to assist Sri Lanka following Basil Rajapaksa’s visit. India is expected to extend a food & health security package to Sri Lanka on an urgent basis, along with an energy security package and currency swap, and also push Indian investments, officials had told ET. It was agreed during Rajapaksa’s visit that the procedures to realize these objectives would be finalized early, within a mutually agreed time.
Cabraalearlier served as State Minister of Finance, Capital Markets, and State Enterprise Reforms recalled that even during the pandemic also, Sri Lanka continued to receive Indian assistance. “In July 2020, the Central Bank of Sri Lanka and the Reserve Bank of India entered into a bilateral currency swap agreement of US dollars 400 million under the Framework on Currency Swap Arrangement for South Asian Association for Regional Cooperation (SAARC) countries for 2019 – 2022, which was fully settled by Sri Lanka in February 2021. This swap facility helped Sri Lanka to maintain sufficient short-term foreign exchange liquidity while managing the international reserves at comfortable levels, and we are hoping to renew that facility shortly, once again.”
India has been among the top three source countries of foreign direct investments (FDIs) to Sri Lanka during recent years. FDI inflows from India including foreign borrowings of companies registered with the Board of Investment of Sri Lanka amounted to $ 80.4 million in the first half of 2021. This was around $ 87.7 million in pandemic affected 2020 and $ 139.0 million in 2019, according to Cabraal.
When asked about Lankan economic recovery, the Central Bank governor claimed, “We are already witnessing signs of a strong recovery in the economy, signaling Sri Lanka’s adaptability to the new normal. Real GDP growth of 4.4 percent was recorded during January-September 2021, which is in line with the target of close to 5 percent annual growth in 2021.”
The Central Bank’s Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability, which was announced in October 2021, further sets out envisaged targets for the buildup of official reserves in the near term, Cabraal said, adding, “In addition to discussions with India and China, the Central Bank is now negotiating with the Middle Eastern and other regional central banks on SWAP facilities, which are now at advanced stages.”
Source: Economics Times, South Asia Monitor