• Mon. Apr 22nd, 2024

Sri Lanka Receives another $100M from Bangladesh Bank under the currency swap facility

(The Daily Star): Bangladesh Bank has lent $100 million more to Sri Lanka to help the island nation stay afloat tackling a foreign exchange crisis. The fund was transferred from Bangladesh’s reserve in the Federal Reserve Bank of New York on August 30, according to a top central bank official.

On the second week of this month, $50 million was initially lent under a currency swap agreement inked by the BB and the Central Bank of Sri Lanka (CBSL) on August 3.

As per the deal, the first-ever loan to any country from Bangladesh, the central bank will provide a total of $250 million to help prop up the island nation’s fast-depleting foreign reserves and ease pressure on its exchange rate.

The financing will be enabled in three phases, meaning another $50 million will be provided, the official said, adding that the outstanding balance limit would never exceed $200 million.

According to the BB official, the CBSL will return the amount in three months at the London Interbank Offered Rate (Libor) plus 2 percent. But if the tenure goes up to six months, the interest rate will be Libor plus 2.5 percent.

The Libor is the global reference rate for unsecured short-term borrowing in the interbank market and acts as a benchmark for short-term interest rates.

If the CBSL fails to return the money, the Sri Lankan government will pay back the loan as per the state guarantee attached in the agreement, the BB official said.

He said Bangladesh was not extending the loan for any commercial purpose.

The decision for the currency swap agreement was set in motion during Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh in March.

As per the deal, the CBSL will hand over an equivalent amount of its currency, which depreciated 6.8 per cent against the US dollar this year.

The BB will open an account with a bank in the South Asian country to keep the sum, which will be around 49.5 billion Lankan rupees, a BB official said earlier. The amount would be used for import payments.

The injection of the American greenback from Bangladesh would be a great relief for Sri Lanka, which has $3.7 billion of foreign debt maturing this year.

It had $2.4 billion in foreign currency reserves at the end of July, down from $4 billion in April.   

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