India extended a $500 million line of credit to Sri Lanka on Wednesday for the purchase of petroleum products. Sri Lanka is currently experiencing its worst foreign exchange and energy crisis in decades.

In the presence of Sri Lankan finance minister Basil Rajapaksa and Indian envoy Gopal Baglay, India’s Export Import (Exim) Bank and the Sri Lankan government signed an agreement for the line of credit. Rajapaksa has been in charge of his government’s efforts to secure financial aid from India in order to get through the crisis.

The Indian government’s support for fuel imports via the line of credit is in response to Colombo’s “urgent requirement,” according to a statement from the Indian high commission.

This crucial support was extended, according to the statement, following a virtual meeting between Rajapaksa and External Affairs Minister S Jaishankar on January 15, during which they discussed a variety of issues.

On Tuesday, the Sri Lankan government agreed to buy 40,000 tonnes of petrol and diesel from the Indian Oil Corporation.

To help Sri Lanka, India has extended a $400 million Saarc currency swap facility and deferred payment of $515.2 million to the Asian Clearing Union (ACU) by two months. India is also expected to provide a $1 billion credit facility for the import of food, essential goods, and medicines.

“As Sri Lanka’s closest neighbour and long-standing partner, India is committed to assist Sri Lanka in its post-Covid economic recovery. Signing of the LOC Agreement is another landmark in our bilateral cooperation and is in continuation of India’s recent foreign exchange support of over $900 million to Sri Lanka,” the statement said.

These actions were based on discussions between the two sides during Rajapaksa’s December visit to New Delhi. With this latest contribution, India’s total development assistance to Sri Lanka now exceeds $4 billion.

The fuel purchase line of credit has been in the works since August 2021, and it will help Sri Lanka’s rapidly dwindling foreign currency reserves, which fell to $3.1 billion in December. Udaya Gammanpila, Sri Lanka’s energy minister, recently predicted fuel shortages due to the country’s inability to pay for oil imports.

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