Sri Lanka in talks with India for $500 million credit line
COLOMBO: Sri Lanka is in discussion with the Indian government for a $500 million credit line to buy fuel to and delay payments, President’s Secretary P B Jayasundera said.
Sri Lanka state-run Ceylon Petroleum Corporation owes nearly $3.3 billion to the two main state banks, almost equal to Sri Lanka’s current foreign exchange reserves over loans taken during periods when there was pressure on the currency.
The state oil distributors imports crude from the Middle East and refined products from other areas including Singapore. A unit of Indian Oil Corporation also imports and distributes refined oil.
Jayasundera, Sri Lanka’s top most public officials was Finance Secretary Secretary in 2008 when global crude prices soared to around 150 US dollar, said the government has been looking at various proposals to borrow for CPC.
“We are also talking with the government of India for an oil credit facility,” Jayasundera told EconomyNext.
“So that petroleum burden would be reduced a little bit. We are looking for around $500 million.”
Sri Lanka’s CPC had borrowed dollars from state banks to pay import bills instead of buying dollars from the forex market whenever the central bank printed money and created forex shortages, analysts have said.
In 2019, the CPC borrowed around 900 million US dollars taking the total loans under Treasury guarantees to 1.8 billion US dollars despite market pricing oil, as money was printed to target a call money rate and close an ‘output gap’.
Borrowings by the CPC which are sometimes externally financed by the CPC tend to widen the external current account deficit, by boosting domestic consumption with foreign borrowings analysts have said. Over the last year some banks have cut their external borrowings with dollar deposits.
Jayasundara ruled out no credit line was sought from Iran as reported in local newspapers.
“Iran is completely out. We deal with the countries which are basically recognized in terms of restrictions,” he said.
Sri Lanka cannot buy Iran crude because of US sanctions imposed in 2012.
The price hike in the global oil prices has forced the island nation to spend more on oil imports this year. The country’s oil bill has jumped 41.5 percent to 2 billion US dollars in the first seven months of this year, compared to last year.
Oil Minister Udaya Gammanpila has been discussing a credit line from the United Arab Emirates.
Gammanpila participated in Gastech Exhibition & Conference in Dubai from Sept. 21-23.
“Negotiations were positively concluded with the Group CEO of Emirate National Oil Company (ENOC), His Excellency @SaifFalasi and senior officers to purchase crude oil on a credit facility,” the minister tweeted early this week.