Sri Lanka’s Finance Ministry clarifies reports on using the Indian credit facility for steel imports

Ministry of finance in Sri Lanka

Sri Lanka’s Ministry of Finance has issued a press release clarifying how the Indian credit facility worth USD 1 billion has been utilised so far.

The Ministry of Finance says the Sri Lankan government signed the USD 1 billion credit facility agreement with the government of India, to facilitate Sri Lankan importers who faced many difficulties in opening Letters of Credit to import food and other essential items due to the shortage of foreign currency in the banking system and the market.

The remarks came in response to a recent media report titled, ‘Indian Credit for Food Goes to Import Steel’.

In its statement, the Finance Ministry stated that the credit line was initially allocated for importation of essential food items (USD 300 million), medicine (USD 200 million) and industrial raw materials (USD 500 million), based on the monthly requirement and the information received from importers.

PRESS RELEASE:

Indian credit for food goes to import steel – Clarifications on recent media reports

The Ministry of Finance would like to clarify that the news article on the Sunday Times dated 1 st May, 2022 titled “Indian credit for food goes to import steel” was based on false information.

The Government of Sri Lanka has signed the USD one billion Credit Facility Agreement with the Government of India to facilitate Sri Lankan importers who faced many difficulties in opening Letter of Credits to import foods and other essential items due to the shortage of foreign currency in the banking system and the market.

Based on the monthly requirement and the information received from importers, the credit line was initially allocated for importation of (a) essential food items – USD 300 million, (b) medicine – USD 200 million and (c) industrial raw materials – USD 500 million. However, this allocation was later revised to accommodate much needed fuel and LP gas by reducing the allocation for industrial raw materials and food items (Annex 1). These allocations were determined considering the prevailed requirements at the time of finalizing the credit line.

The industrial raw materials include paper & printing materials, packaging materials, raw materials for textile industry, non-carbonic chemicals, cement/clinker, raw materials for transformers, fertilizer and steel. Industrial raw materials were considered in this credit line as these materials are required for continuation of the ongoing important projects and export industries that will ultimately bring foreign exchange in to the country. As of today, USD 40 million has been utilized for importation of steel.

Government will review the present allocation for different sub categories based on the current needs prioritizing essential food items, medicines, fuel and LP gas. A guideline has already been published in the web of the Ministry of Finance and applications are invited from interested parties for importation of goods under the credit facility.

Ministry of Finance
2022-05-02

Sectoral Breakdown of Credit Facility
Item / Sector Initial Estimate
(USD Million)
Revised Estimate
(USD Million)
Industrial raw materials 500 260
Food items 300 180
Medicine 200 200
Fuel 200
LP Gas 160*
1,000 1,000

* This amount may change based on the requirement.

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