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Sri Lanka to borrow $200 million from Pakistan?

Sri Lankan media reported that the government has commenced groundwork to secure a US$ 200 million credit line extended by the Government of Pakistan.

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It appears that Pakistan has agreed to lend $200 million to Sri Lanka for the purchase of rice and cement. The news was reported by a Sri Lankan media house called the Daily Mirror.

“The government has commenced groundwork to secure a US$ 200 million credit line extended by the Government of Pakistan,” the Sri Lankan media report noted.

The countries made the decision during a recent visit of the Sri Lankan trade minister Bandula Gunawardana to Islamabad. Speaking to Mirror Business, Secretary to the Treasury Sajith Attygalle revealed that the two countries agreed to US$ 200 million in principle. They will work on the details at a later stage.

Read more: Pakistan and Sri Lanka to rejuvenate the bilateral relations

Under this credit line, Sri Lanka will import cement, basmati rice, and medicines manufactured in Pakistan through the State Trading (General) Corporation. The Sri Lankan cement market faced a shortage which led to skyrocketing prices.

Important to note, the International Monetary Fund’s (IMF) Executive Board on Wednesday approved Pakistan’s request for a $1 billion loan tranche. The country’s finance minister, Shaukat Tarin, took to his official Twitter account and confirmed the news.

Sri Lanka says no to IMF

Interestingly, last month, Sri Lanka ruled out an IMF bailout and said it plans to seek another loan from China. It aims to address an economic crisis leading to food and fuel shortages.

Sri Lanka’s tourism-dependent economy faced a crunch owing to the pandemic. As a result, international rating agencies warned of a looming sovereign default on Sri Lanka’s $35 billion foreign debt. However, Sri Lanka’s central bank governor Ajith Nivard Cabraal rejected mounting calls from local and international economists to seek an IMF bailout.

“The IMF is not a magic wand,” he told a news conference in Colombo. “At this point, the other alternatives are better than going to the IMF.”

To clarify, other alternatives are China, India, and Pakistan. Beijing is Sri Lanka’s biggest bilateral lender, accounting for at least 10 percent of its external debt. Sri Lanka borrowed heavily from China for infrastructure in the past. However, most of it failed to make profits which rendered Sri Lanka incapable of paying back the loan. Unable to repay a $1.4 billion loan for port construction in the south, Sri Lanka was forced to lease out the facility to a Chinese company for 99 years in 2017. Still, Sri Lanka considers China a better option than IMF.

Read more: You’re not a slave, don’t follow IMF, WB: US economist to Pakistan

Cabraal added that talks with China over a new loan were at an “advanced stage”, and a fresh agreement would service existing debt to Beijing.

On the other hand, talks were also underway with India for a $1 billion credit line to fund a broad range of imports. According to the latest reports, the Sri Lankan government is expecting to secure US$ 1 billion credit line requested from India next week.