Colombo: Sri Lanka received temporary reprieve from energy shortages and rolling blackouts on Wednesday, thanks to a $500 million loan from India to fund the cash-strapped country’s essential oil needs.
Due to the island’s economic troubles, thermal power generators have been unable to keep the lights on, and transportation networks have been hampered, while traders run out of foreign cash to pay imports.
Unannounced power outages have been aggravated by frequent malfunctions at a large coal power plant, and residents are now struggling to find cooking gas and kerosene.
After two weeks of discussions, officials claimed a formal deal will be inked on Wednesday, in addition to a recent $915 million in foreign exchange help.
Another $1 billion credit line is being discussed, according to an Indian ambassador, to cover critically needed food and pharmaceutical supplies from India.
The $500 million would be used to buy petroleum goods from Indian suppliers, according to the official. Rice, automobile parts, and cement are all in short supply in Sri Lanka’s economy, forcing stores to limit several fundamental items. Food inflation hit a new high of 25% last month as a result of the shortages.
Sri Lanka’s tourism industry is a major source of foreign cash, although it has fallen in the aftermath of the Covid-19 outbreak.
To save money, the government has closed abroad diplomatic offices, and a sweeping import embargo has been in place for over two years to preserve foreign currency.
Since late last year, three international rating agencies have downgraded the island, citing concerns that it may be unable to fulfill its $35 billion sovereign debt.
Sri Lanka has asked Beijing for new loans to assist pay off its existing Chinese debt, which amounts for around 10% of the country’s total external debt.
Authorities have borrowed significantly from China in the past for infrastructure projects, some of which have turned out to be expensive white elephants.