A Sri Lankan official told that on Tuesday that India has extended a $1 billion credit line for Sri Lanka by one year, providing the crisis-hit country with additional funds to pay for essential imports.

The credit line, which was part of a $4 billion emergency aid package extended by India during the height of Sri Lanka's financial crisis early last year, was set to expire in March.

According to Sri Lanka's Deputy Treasury Secretary Priyantha Rathnayake, the credit line was extended after negotiations until March 2024.

"There is approximately $350 million remaining on the credit line that can be used as needed," he said.

"However, given the increased availability of foreign exchange in the market, the demand is not as strong as it was last year."

Sri Lanka was negotiating with India to extend the facility, which had previously been used primarily for medicines and food.

Sri Lanka's reserves fell to record lows in April last year, precipitating the country's worst financial crisis since it gained independence from British colonial rule in 1948. The island, located off India's southern coast, struggled for months to pay for essential imports such as fuel, cooking gas and medicine, and eventually defaulted on its foreign debt.

The situation has now improved, with Sri Lanka finalising a nearly $3 billion IMF bailout package in March and beginning debt restructuring talks with key bilateral creditors India, Japan, and China.

At the end of last month, Sri Lanka's foreign exchange reserves stood at $2.7 billion.