US$ 200M Currency Swap Deal with Bangladesh
By Ishara Gamage
The Central Bank of Bangladesh or Bangladesh Bank (BB) has recently approved a US$ 200 million currency swap facility for Sri Lanka, according to Bangladeshi media reports. However, a Central Bank of Sri Lanka (CBSL) spokesman said that no final statement had been received from Bangladesh in this regard.
But, he confirmed that Sri Lanka has requested such currency swap initiative with Bangladesh during the Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh to join the celebrations of the golden jubilee of Bangladesh’s Independence. The Ministry of Finance and the Central Bank of Sri Lanka (CBSL) have meanwhile launched special bilateral and multilateral programmes to strengthen Sri Lanka’s deteriorating foreign reserves, their spokespersons told Ceylon FT yesterday.
The CBSL is confident that the largest of these, the US$ 780 million, will be secured through the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) grant facility. The IMF’s Executive Board recently conveyed broad support for the general allocation of SDR of $650 billion. The move would provide additional liquidity to the global economic system by supplementing the reserve assets of the Fund’s 190-member countries. The CBSL is also planning to enter the fresh US$ 400 currency swap agreement with the Reserve Bank of India (RBI) under the Framework on Currency Swap Arrangement for South Asian Association for Regional Cooperation (SAARC).
The challenging external economic environment of Sri Lanka today is the result largely of this COVID-19 pandemic. Further discussions are ongoing to secure an additional USD one billion, under a Special Bilateral Swap Agreement with the Reserve Bank of India. The Government’s external debt liability for the next 7 to 8 months of this year was over US$ 1.5 billion. The next highestpaying US$ 1 billion sovereign bond will expire this July.
Sri Lanka’s foreign exchange reserve was $4.5 billion in April, according to available data. But with the $ 1 billion bond maturity in July, this reserve value could drop to $ 2.5 billion, say economists. They also say that prevailing deteriorating trend of foreign reserves will be exacerbated in the face of forthcoming loan interest payments and the Asian Clearing Union (ACU) settlements that must be made every two months.
It is proposed to take the relevant reserve strengthening measures subject to the $ 1.8 billion external credit limit approved by this year’s budget. As a first step, they said they expect to receive significant dollar inflows from international organisations in the near future for policy formulation and Government economic reform programmes.
In addition, Sri Lanka is working to strengthen its foreign reserves via currency swap facilities and non-debt creating routes in Oman, Bangladesh and several other East Asian countries. The Bangladesh currency swap agreement would be finalised after getting a legal vetting approved by the Government, BB officials told Bangladesh New Age media net work after the meeting.
BB governor Fazle Kabir chaired the meeting at its headquarters in Dhaka. Under the draft currency swap proposal, the BB would provide up to $200 million in foreign currency to meet Sri Lanka’s foreign currency expenditures, the officials told Bangladesh New Age media net work. Against the fund, Sri Lanka would keep a same amount of its local currency, Rupee, with the Bangladesh Bank along with a Government guarantee. The BB would get around 1-2 per cent plus LIBOR from Sri Lanka as interest.
The currency swap agreement also contains a rollover condition, allowing Sri Lanka to extend the period of repayment of the loan, the BB officials said. Before the move to strike a currency swap deal with Bangladesh, Sri Lanka has already signed a 10 B Yuan or $ 1.5b swap with the Peoples’ Bank of China. Bangladesh’s reserve has been growing rapidly after the outbreak of COVID-19 whereas the reserve of Sri Lanka has been under pressure following the outbreak of coronavirus that struck its tourism sector severely. In May, Bangladesh’s foreign exchange reserve stood at more than $ 45 billion, Bangladeshi media stated.