Timely help from India rescues Sri Lanka from economic crisis

Due to a severe shortage in oil, gas, medicines, and food items because of a shortage of forex, Sri Lanka was under huge economic crisis, however, India's timely help rescued the emerald island.

According to reliable sources, India in the last six months has provided assistance on several fronts to its tiny neighbour to tide over its economic crisis.

Assistance from India in the last six months have come in the form of; a USD 500 million oil line of credit; USD 1 billion lines of credit for essentials to be imported from India under negotiation; Currency swap of USD 400 million; Deferral of USD 515 million under Asian Clearance Union; 40,000 MT of fuel on credit; 100,000 Rapid Antigen Test kits and supply of 1,000 tons of liquid medical oxygen, reported Daily FT.

India is expected to extend a food and health security package to Sri Lanka on an urgent basis, along with an energy security package and currency swap, and also push Indian investments.

The food and health security package would envisage the extension of a line of credit to cover the import of food, medicines and other essential items from India.

It is said the energy package would also comprise a line of credit to cover the import of fuel from India and an early modernization of the Trincomalee Oil Tank Farm.

The disaster was partly manmade due to as pointed out by ex CBSL Deputy Governor Dr Wijewardana that "the Government made serious policy errors when it announced an unsolicited, attractive tax concession to income taxpayers. The consequence of this extraordinary money growth was the building up of inflationary pressure in the domestic economy on one side, and the depletion of foreign reserves putting pressure on the rupee to depreciate in the market, on the other," reported Daily FT.

The rest of the crisis was due to the massive drop in tourism-related earnings in 20/21, heavy debt repayments and an increase in pandemic-related expenses. The result of all this was that 500,000 people according to the World Bank have fallen below the poverty line, whilst food inflation hit 21 per cent.

Moreover, oil-dependent Sri Lanka's problems got further aggravated with oil prices surging despite new measures by the US and EU aimed at calming markets troubled by the invasion of Ukraine.

According to published data, Lanka's oil bill in 2021 had increased by 50 per cent, compared with the last year, reported Daily FT.

The Indian assistance at this time, is timely and impactful on several fronts. Sri Lanka would certainly need more assistance from them to ride over 2022.