July 7 (LiveMint) – India plans to allow Sri Lanka up to 12 years to repay its debt to help ease the financial burden on the island nation, India’s Export Credit Guarantee Corporation (ECGC) Ltd’s chairman-cum-managing director M. Senthilnathan said.
Sri Lanka, facing its worst economic and political crisis in over seven decades, owes $7.1 billion to bilateral creditors— $3 billion owed to China, $2.4 billion to the Paris Club and $1.6 billion to India.
“Sri Lanka’s negotiations with the IMF are going on. After that restructuring package will come, we will recover [our] money over a period of time. What we are supposed to get in 3-4 years, may get extended to 10-12 years,” Senthilnathan said.
“But the interest rate will come down. This is a situation induced by inflation and because of the fallout of (Ukraine) war. You accommodate them for the next 5-6 years and later the markets will open up,” Senthilnathan added.
Earlier this year, the International Monetary Fund (IMF) approved a $3 billion loan programme for Sri Lanka to help stabilize its economy and begin restructuring its debt. The island nation received an immediate disbursement of about $333 million under the 48-month programme approved by the IMF.
Senthilnathan added that the National Export Insurance Account, managed by the ECGC, has received close to ₹4,500 crore worth of claims from exporters facing default in countries such as Sri Lanka, Zambia, Suriname and Ghana which faced extreme economic hardships after covid-19 and the Ukraine war.
Notably, Sri Lanka’s financial situation is improving as it has lifted import restrictions on 286 items. Originally, its government had limited imports of more than 3,200 items, including seafood, electronics and even musical instruments.
Besides, its reserves have grown 26% to a 17-month high of $3.5 billion in May, helped by stronger remittances and tourism earnings.
India had earlier extended a $1 billion credit line for Sri Lanka by a year.
The credit line, part of a $4 billion emergency assistance extended by India during the peak of Sri Lanka’s financial crisis early last year, was scheduled to end in March.