EXIM Bank- Sri Lanka $500-mn loan agreement

February 3, 2022

On February 2, 2022, the Export Import Bank (EXIM) of India and Government of Sri Lanka signed a USD 500- million Line of Credit agreement.

Key Facts

The loan agreement is aimed at helping Sri Lanka cope with its current fuel shortages, amid worst economic crisis in the island nation.
India’s support for fuel imports by Sri Lanka, through the Line of Credit, is in light of Sri Lanka’s “urgent requirement”.
Following the agreement, the Sri Lankan government is likely to invite bids from Indian suppliers soon to finalise its import.

Line of Credit

The Line of Credit spans over a year, at a nominal interest rate of under 2%.

Situation in Sri Lanka

Sri Lanka’s ability to import fuel has been severely affected because of dollar crisis in Sri Lanka. It has further led to frequent reports of shortages and power failures.

Background

India’s support to Sri Lanka came after a of a virtual meeting between External Affairs Minister of India S. Jaishankar and Minister of Finance of Sri Lanka Basil Rajapaksa. The meeting was held on January 15, 2022.

Currency Swap

India extended a USD 400 million currency swap to Sri Lanka in January 13, 2022.
India also deferred another USD 500 million due for settlement to Asian Clearing Union (ACU), in a bid to help Sri Lanka cope with its dollar crunch.
Now, governments from both the nations are in talks for another USD 1 billion assistance, at a time of unprecedented economic crisis in Sri Lanka.

EXIM Bank

Government of India had established ‘EXIM bank’ under the Export-Import Bank of India Act, 1981. It was established as a vendor of export credit, to mirror global Export Credit Agencies. The bank serves as a growth engine for SMEs and industries through a wide range of services and products. This includes import of technology, export production, export product development, pre-shipment & post-shipment, export marketing and overseas investment.

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