India might agree to defer over US$ 2.5 B ACU Payments

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By Ishara Gamage

The Reserve Bank of India (RBI) has considering  to  defer a total of $ 2.5B of payments due this year by Sri Lanka via the Asia Clearing Union (ACU),  a government spokesman  told Finance Today.

Accordingly, an agreement has been reached to defer payment of around US $ 900 million due in January and March this year.

About $ 2.5 billion was due in January, March, May, July and September this year.

This is the first time in ACU history that they have agreed to re-structure/differ ACU payments by a single member country.  

The International Sovereign Bond repayment of $ 500 million on 18 January 2022 was made possible only through the very timely SWAP of $ 400 million with the RBI and the deferral of a payment of $ 500 million to India under the Asian Clearing Union (ACU).   

Both of these short-term interventions played a critical role. The former is a three-month facility, which can be renewed twice (i.e., nine months) before the requirement of at least a staff-level agreement with the IMF.    

Without such much needed support from India, Sri Lanka would have defaulted on the recent (International Sovereign Bond) ISB repayment and triggered an untold economic and humanitarian hardship.

India has been playing a key role in the success of the ACU mechanism, topping the turnover table year after year. 

Iran based Asian Clearing Union (ACU) is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis. The main objectives of the clearing union are to facilitate payments among member countries for eligible transactions, thereby economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade and banking relations among the nine participating  nations namely Bangladesh. Bhutan, India. Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka.