B’desh releases $ 150 m out of $ 200 m for SL under swap deal

Bangladesh has released a further $ 100 million more out of the $ 200 million to Sri Lanka under the swap arrangement, increasing the total to $ 150 million.

The release of the latest tranche was reported in Bangladesh’s newspaper The Financial Express, though there was no announcement from the Central Bank of Sri Lanka. 

Funds from Bangladesh have been provided under the currency swap agreement signed by the Bangladesh Bank (BB) and the Central Bank of Sri Lanka (CBSL) on 3 August.

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

The report said, 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.

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%. 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%.

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% of GDP. Reserves declined to an 11-year low in February 2021, and the exchange rate depreciated by 6.5% from January through March 17, 2021,” the World Bank said in a statement on April 09. (Source: https://thefinancialexpress.com.bd/economy/sri-lanka-set-to-get-another-100m-from-bangladesh-under-swap-arrangement-1630290778)