India has extended its $1 billion credit line to Sri Lanka for an additional year, in a move to help the island nation cope with its worst economic crisis in decades. The credit line can be used by Sri Lanka to import essential goods such as food, medicine, and fuel. It is part of a wider $4 billion assistance package that India has provided to Sri Lanka since the start of the economic crisis
More About the News
- In March last year, an agreement was signed between the State Bank of India (SBI) and the Sri Lankan government for a $1 billion credit facility.
- India extended the credit line to Sri Lanka during its economic crisis.
- An Amendment Agreement was signed recently, extending the credit facility until March 2024.
- The credit facility allows Sri Lanka to procure essential items such as medicine, food, and other necessities.
- India provided a total of $4 billion in assistance to Sri Lanka last year, including multiple credit lines and currency support.
- The support is in line with India’s ‘Neighbourhood First’ policy.
- The assistance aims to contribute to Sri Lanka’s economic stabilization and recovery.
- In 2022, Sri Lanka experienced a severe financial crisis, the most significant since gaining independence from Britain in 1948. The crisis was caused by a severe shortage of foreign exchange reserves, leading to economic instability.
- This crisis resulted in political turmoil within the country and ultimately led to the removal of the influential Rajapaksa family from power.
- The financial crisis and its subsequent impact on the political landscape had a profound effect on Sri Lanka’s economy and governance.
Resumption of Japan-funded Light Rail Transit (LRT) Project
- Sri Lanka has started preliminary work to revive the abandoned Japan-funded Light Rail Transit (LRT) project.
- President Ranil Wickremesinghe’s proposal to resume the project has been approved by the cabinet.
- Wickremesinghe visited Japan to address concerns and clear obstacles related to the project.
- Former President Gotabaya Rajapaksa had unilaterally canceled the $1.5 billion LRT project and the Colombo Port’s East Container Terminal (ECT) projects in 2021.
- Japan had agreed to fund the LRT project, and India and Sri Lanka also showed interest in the ECT project.
- The decision to resume the LRT project reflects efforts to reestablish international partnerships and promote infrastructure development in Sri Lanka.
About Sri Lanka
- Sri Lanka, officially known as the Democratic Socialist Republic of Sri Lanka, is an island country located in South Asia.
- It is situated in the Indian Ocean, southeast of the Indian subcontinent.
- The capital city is Sri Jayawardenepura Kotte, while Colombo serves as its largest city and commercial center.
- The current President is Ranil Wickremesinghe. He was elected on 20 July 2022, after the previous president, Gotabaya Rajapaksa, resigned following months of protests.
- The current Prime Minister is Dinesh Gunawardena. He was appointed by President Wickremesinghe on 22 July 2022.
- It has a rich cultural heritage and is known for its diverse landscapes, including pristine beaches, lush mountains, and ancient ruins.
- The country is renowned for its wildlife, tea plantations, and historical sites such as Sigiriya and Anuradhapura.
- It has a multiethnic and multicultural population, with Sinhalese, Tamil, Muslim, and other communities contributing to its cultural fabric.
- The economy relies on various sectors such as tourism, agriculture, manufacturing, and services.
- The country has a developing economy and is known for its exports of tea, textiles, garments, and precious stones.
- Sri Lanka has made progress in human development indicators and has a relatively high literacy rate.
- Sri Lanka has a parliamentary system of government, and the President is the head of state and government.
- The country has faced challenges such as civil war and natural disasters in the past but has been working towards reconciliation, development, and stability.
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When did Sri Lanka change its capital?
Sri Lanka changed its capital from Colombo to Sri Jayewardenepura Kotte in 1977. The decision was made by the government of President J.R. Jayawardene, who wanted to create a new capital that would be more representative of the country’s Sinhalese majority.
What is the difference between a Loan and a Line of Credit?
A loan is a one-time payment of money that is borrowed from a lender and must be repaid over a set period of time with interest. A line of credit is a revolving account that allows borrowers to borrow money up to a certain limit and repay it as needed. Interest is only charged on the amount that is borrowed.
Here are some of the key differences between loans and lines of credit:
Amount: Loans typically have a fixed amount that is borrowed, while lines of credit have a revolving credit limit that can be borrowed against as needed.
Term: Loans have a fixed term, during which the borrowed amount must be repaid, while lines of credit have no fixed term and can be repaid at any time.
Interest: Loans typically have a higher interest rate than lines of credit.
Purpose: Loans are typically used for specific purposes, such as buying a car or a home, while lines of credit can be used for any purpose.