India to step up assistance as Sri Lanka stares at bankruptcy

India is expected to step up its economic assistance to Sri Lanka with the country being on verge of bankruptcy and with its usable foreign reserves down to less than $50 million.

The fresh assistance could focus on humanitarian requirements and both governments are in close touch, ET has learnt. The Lankan government has sought urea supply from India. Earlier India has supplied fuel, medicines and rice.

Sri Lanka’s Cabinet recently cleared a proposal to source more fuel from India, through a $200 million short-term loan facility from the Exim Bank of India. India has extended nearly $3 billion to cash-strapped Sri Lanka since January 2022, by way of currency swaps, credit lines for essentials, and loan deferments


On Friday Lanka's bus and train networks grounded to a halt while offices and factories were empty in a nationwide strike demanding the government's resignation.

Sri Lanka’s economy is in dire straits with its usable foreign reserves down to less than $50 million, the country’s finance minister said Wednesday.

Finance Minister Ali Sabry was speaking to Parliament after returning to Sri Lanka from talks with the International Monetary Fund.

He said any IMF rescue program, including a rapid financing instrument needed to urgently resolve shortages of essential goods, would depend on negotiations on debt restructuring with creditors and would take six months to implement. The country is due to repay $7 billion this year of the $25 billion in foreign loans it is scheduled to pay by 2026.

Sabry — who quit April 4, a day after being appointed, only to return — warned 'we have been over-spending two and a half times'. "In 2021 total income was 1,500 billion (Sri Lankan) rupees… expenditure was 3,522 billion rupees… we were living (beyond) our means…" he said, cautioning MPs that aid from the World Bank or the IMF would not solve deep-rooted problems.

"The IMF is not Aladdin's magic lamp," he said. Last week the World Bank said it would provide $600 million in aid to help Sri Lanka meet payment requirements for essential imports.

On Thursday Sabry told Parliament that Sri Lanka lost about 500,000 taxpayers each in 2020 and 2021 after the ill-timed tax cuts were delivered. The prolonged and intermittent lockdowns caused by the pandemic prevented the economy from achieving what was originally expected from the tax cuts, Sabry claimed.