India has agreed to extend an additional USD 500 million credit line to help Sri Lanka import fuel, Finance Minister Ali Sabry said, amid delays in chalking out a bailout package with the IMF to mitigate the dire financial crisis facing the island nation.

Sri Lanka has been struggling to pay for imports after its foreign exchange reserves plummeted sharply in recent times, causing a devaluation of its currency and spiralling inflation.

“India has agreed to provide an additional USD 500 million for our fuel imports,” Sabry said on Friday, while adding that he was hopeful that New Delhi would consider handing out another USD 1 billion dollars as a credit line. India has already agreed to defer USD 1.5 billion in import payments that Sri Lanka needs to make to the Asian Clearing Union.

On Friday, New Delhi has also extended the tenure of a USD 400 million swap given in January this year, the Indian High Commission said. Sabry is currently in Washington to negotiate a programme with the International Monetary Fund (IMF). The finance minister said that talks have begun on an Extended Fund Facility, but the finer details of the programme are yet to be finalised.

Sri Lanka needs at least USD 4 billion to tide over its mounting economic woes, and Sabry has been holding talks with international institutions such as the World Bank as well as countries like China and Japan for financial assistance.

“It will be a difficult period in the next nine months. During that time there is a need to bring in more investments in US dollars into the central bank. We are talking with several countries. If these efforts are successful, and if investment of about USD 2 billion comes to the central bank, it will help stop the depreciation and stabilise the rupee,” Sabry said. On April 12, Sri Lanka suspended its debt servicing for the first time in its history.

Last week, the Sri Lankan government said it would temporarily default on USD 35.5 billion in foreign debt as the pandemic and the war in Ukraine made it impossible to make payments to overseas creditors. Sri Lanka has been witnessing mass anti-government protests in recent weeks as it suffers food shortages, soaring fuel prices and major power cuts due to the unprecedented financial crisis.