ECONOMYNEXT – India has become the top lender to Sri Lanka in early 2022, official data showed as the neigbhour stepped in with emergency financing as the island was gripped by the worst currency crisis in the history of its 72 year old intermediate regime central bank.

Up to April 2022, India had disbursed 376.9 million US dollars, mostly a credit line for petroleum imports up from 13 million US dollars last year.

Sri Lanka had signed up 1,550.4 million US dollars in new loans up to April 2022, with 1.5 billion coming from India, a Finance Ministry report said.

Sri Lanka is facing severe forex shortages after a the credibility of a peg was lost by liquidity injections and float attempted with a surrender rule in place failed and is unable to fund large import bills.

However rates have since been hiked and private credit is slowing giving more resources to fund a deficit and pay state workers, though the steep currency collapsing is destroying real savings.

Asian Development Bank disbursed 359.6 million US dollars up to April 2022 up from 113.6 million US dollars last year.

China disbursed 67.9 million US dollars up to April 2022, down from 514.9 million US dollars a year ago.

China last year gave a 500 million US dollar budget support loan.

Many Chinese projects are now winding down.

Sri Lanka had committed undisbursed loan balance of 8.05 billion US dollars, which relate to projects over the next 3 to 5 years.

India has the majority of the balance to be disbursed followed by, the Asian Development Bank, World Bank, China, and Japan.

Sri Lanka defaulted on its foreign debt in April 2022, after 7 years of flexible inflation targeting cum output gap targeting triggered three currency crises in a row and growth declined amidst the most severe monetary instability seen in history of the islands intermediate regime central bank. (Colombo/July05/2022)