News

$ 1.5 billion Indian lines of credit: Sufficient only for a month?

  • $ 1.5 b will be utilised in a month’s time: Wijewardena
  • Says SL may have to borrow to repay loan or seek extension
  • Repeatedly seeking short-term loans is problematic: Fernando
  • Importers not burdened with unwarranted charges at port: SLPA

By Skandha Gunasekara 

As Sri Lanka prepares to utilise the lines of credit from India amounting to $ 1.5 billion for fuel and other essential imports including medicine and food commodities, experts opine that the credit facility will not be adequate to import goods for more than a month.

Multiple reports during this month indicate that the Sri Lankan Government is seeking loans and credit lines from friendly nations to sustain its ailing economy and bring in much-needed essential item imports, including fuel.

On Monday (21) Chinese Ambassador to Sri Lanka Qi Zhenhong announced that China would be considering a $ 1 billion loan and a $ 1.5 billion credit line to purchase goods from China, both of which would be new lines of financing.

Trade Minister Dr. Bandula Gunawardena last week told The Sunday Morning that the Government was looking to Australia for a $ 200 million credit line to source essential items such as dhal, milk powder, and other milk products.

However, the most immediate financial assistance Sri Lanka will be receiving is the $ 1.5 billion in lines of credit for fuel and other essential imports.

Deputy Treasury Secretary R.M.P. Rathnayake told The Sunday Morning that $ 500 million would be solely for fuel imports from India.

“Essential goods and raw materials will be imported while the $ 500 million is only for fuel. The $ 1 billion will only be for essential items such as rice and medicines.”

He noted that he was unsure how long the $ 1 billion credit line would suffice for imports. “The loan will last us until the entire $ 1 billion is utilised. I don’t know how long that will take. It will depend on the importers and how long it will take for them to use it.”

Former Deputy Governor of the Central Bank of Sri Lanka (CBSL) and economist W.A. Wijewardena told The Sunday Morning that medicines, rice, and raw materials were some of the essentials that needed to be imported.

“The $ 500 million has come from the Central Government of India but the balance $ 1 billion credit line is from the State Bank of India. This is important to note because the State Bank of India is similar to the Bank of Ceylon in Sri Lanka. These both are trade credits and will facilitate us to buy goods from India. Essential goods that we need right now are fuel, medicines, rice, and raw materials for some of the industries such as plastic as well as possibly coal for our coal power plant,” Wijewardena opined.

However, he asserted that the credit line would expire within just a month. “The $ 1 billion is a three-year credit facility. We have to repay in three years. Given Sri Lanka’s current appetite for imports, the entire $ 1.5 billion will be utilised in one month’s time.”

He then went on to say that due to the loan repayment being so short, Sri Lanka may have to borrow once again to repay this Indian credit when the loan was due.

“We have a three-year time period to repay the loan and at the end of the time period if it is not repaid or extended we will have to find dollars to pay for it. So, it’s a question we have to address to ourselves right now – how will Sri Lanka gain capacity to repay once these loans are due for payment? In the past we built up a fund by allocating revenue from the current year so that we would be able to pay the entire amount once the loan was due for payment. Right now, we can’t operate such a system because we do not have dollars, nor do we have money in the Government. Naturally at the end of the period, either Sri Lanka will have to borrow from somewhere else and pay or negotiate with India for an extension of the period.”

Meanwhile, Advocata Institute Chief Operating Officer and economist Dhananath Fernando also opined that $ 1 billion may not even last the month.

“If we take the $ 1 billion credit line solely for imports as the Government has claimed, well our total imports for the year amount to about $ 20 billion, so in that sense the $ 1 billion might not even last us a month. Main essentials such as gas, pharmaceuticals and some of industry exports will definitely come in the credit line and under the loan. The priority must be food, pharmaceuticals, and gas.”

He said that even if the entire $ 1.5 billion was used for fuel, it would still be utilised within three months and the Government should be cautious when importing fuel to ensure no delays happen when making payments as this could incur further charges.

“If you take $ 1.5 billion in total for fuel expenses alone, it will only last two to three months at the maximum because oil prices have skyrocketed due to other global events. We need roughly $ 300 to 400 million per month at a lower market price for fuel imports. Our challenge is to keep things floating till things are resolved. Generally, what happens with fuel shipments is that there can be delays in payments and that will incur demurrage charges, which will result in the supplier increasing the price of the next shipment. So we have to be very careful on these matters.”

When asked about loan repayment, he said the short-term factor of the loan would make things harder in the long run considering Sri Lanka’s economy. “We have to redo the calculations on debt because with more short-term loans it becomes very tight. It’s a vicious cycle of micro-credit where you borrow continuously on a short-term basis and when you try to repay you have massive debt outflow repayment schedules and almost every other month you have to settle debt, so it is very difficult.”

Meanwhile, the Sri Lanka Ports Authority (SLPA) affirmed that there was no congestion at the port due to the dollar shortage holding up container clearance.

“Daily we release between 1,800 to 2,500 containers from the port. It all depends on how and when people want to pay their duties and take the containers out. Of course, in order to do those things, they might have to sort bank-related matters but we have not seen any containers getting stuck at the port or being kept for unwarrantedly long periods of time because we discharge a high volume on a daily basis. I can’t say there is congestion at the moment at the port and I’m speaking of the entire port including the private terminals as well as the SLPA terminal,” SLPA Chairman Dr. Prashantha Jayamanna told The Sunday Morning.

He noted that importers had the leeway to temporarily waive off port charges and clear the containers in instances when the banks delayed dollar payment facilities.

“As per the President’s guideline, the Minister of Ports has given certain waivers to anybody who is facing any issues concerning bank-related matters. In such a situation, they can get a confirmation from their bank and the SLPA can be requested to waive off charges until after the containers have been cleared. This has been the standard practice since January. A lot of people are utilising this facility and no one is being penalised in an unwarranted manner.”