The Export Import Bank (EXIM) of India and the Government of Sri Lanka on Wednesday signed a $500 million Line of Credit agreement aimed at helping Sri Lanka cope with its current fuel shortages, amid one of the worst economic meltdowns facing the island nation.

New Delhi’s support for fuel imports — by Sri Lanka from India — through the Line of Credit, is in response to Colombo’s “urgent requirement”, according to a statement from the Indian High Commission in Colombo. “This critical support comes in the wake of a virtual meeting between the External Affairs Minister S Jaishankar and the Sri Lanka’s Minister of Finance Basil Rajapaksa, held on January 15,” said the official statement released on Wednesday. Days after the meeting, India made the announcement confirming the emergency LoC.

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Official sources indicated that the Line of Credit spans a year, and comes at a “nominal” interest rate, of under 2 per cent. The Sri Lankan government is expected to invite bids from Indian suppliers soon to finalise its import. Amid Sri Lanka’s persisting dollar crisis, the country’s ability to import fuel has been severely affected, leading to frequent reports of shortages, as well as power failures.

On January 13, India extended a $400 million currency swap to Sri Lanka, while also deferring another $500 million due for settlement to the Asian Clearing Union (ACU), to help the island nation cope with its dollar crunch. Further to the $900 million extended then, and the emergency credit for fuel imports now, both governments are in talks for another $1 billion assistance that Colombo has sought from New Delhi, at a time when the island nation faces an unprecedented economic crisis.