Sri Lanka set to get another $100m from Bangladesh under swap arrangement

Bangladesh is set to send US$100 million more to Sri Lanka today (Monday) to help the island nation in minimising foreign-exchange crunch on their economy, officials said.

The fund from Bangladesh has been provided under the currency-swap agreement signed by the Bangladesh Bank (BB) and the Central Bank of Sri Lanka (CBSL) on August 03.

Earlier on August 18, the BB transferred $50 million to the CBSL in the first installment under the currency-swap deal initiated in March this calendar year.

As per the agreement, the central bank of Bangladesh will transfer $50 million more shortly to its counterpart of Sri Lanka if the CBSL sends a request to the BB within five working days after receiving the second tranche of the aid, according to the officials.

"We're hopeful that the CBSL would send a request within the stipulated timeframe seeking a third instalment of the agreement," a BB senior official told the FE Sunday.

Under the deal, the central bank of Bangladesh will provide a total of $200 million to help prop up the island nation's fast-depleting foreign reserves and ease pressure on its exchange rate.

The decision on the currency swap was set in motion during Sri Lankan Prime Minister Mahinda Rajapaksa's visit to Bangladesh in March 2021.

As per the agreement, the CBSL will have to deposit an equivalent amount of its currency with the BB's account which has already been opened in the SAARC-member country.

"We're providing the funds under currency swap-agreement aiming to help a friendly SAARC-member country which is in trouble," another BB official told the FE.

He also said it is the first currency swap outside the Asian Clearing Union (ACU) mechanism.

The ACU is an arrangement involving Bangladesh, Bhutan, India, Iran, Myanmar, Nepal, Pakistan, Sri Lanka, and the Maldives, through which intraregional transactions among the participating central banks are settled on a multilateral basis.

The central bank of Bangladesh has given the first tranche for all the instalments for three months, according to the central banker.

If the CBSL fails to repay the loan by the deadline, it will get three more months to repay. If it fails to pay back again, it will be given three more months.

The CBSL will return the amount in three months at the interest rate of the London Interbank Offered Rate (LIBOR) plus 2.0 per cent. If it can't honour the deadline, the interest rate will not change.

But if the tenure goes up to six months, the interest rate will be LIBOR plus 2.5 per cent.

LIBOR is a benchmark interest rate at which major global banks lend to one another on the international inter-bank market for short-term loans.

Striking a balance between supporting the economy amid Covid-19 and ensuring fiscal sustainability remains a key challenge for Sri Lanka, according to the World Bank.

"Public and publicly guaranteed debt is estimated to have increased to 109.7 per cent of GDP. Reserves declined to an 11-year low in February 2021, and the exchange rate depreciated by 6.5 per cent from January through March 17, 2021," the World Bank said in a statement on April 09.

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