Bangladesh’s currency swap agreement with Sri Lanka to replenish the island nation’s fast-depleting foreign reserves and ease pressure on its exchange rate will be completed by next month, according to a top official of Bangladesh Bank.
A total of $250 million would be provided, said the official working on the deal set in motion during Sri Lankan Prime Minister Mahinda Rajapaksa’s Bangladesh visit in March.
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By July, all the necessary documents would be signed and the amount given to Sri Lanka, the official told The Daily Star yesterday, seeking anonymity due to the sensitivity of the matter.
The Central Bank of Sri Lanka (CBSL) will hand over an equivalent amount of its currency, which depreciated about 7 percent against the US dollar this year.
Yesterday, each dollar traded for 197.9 Sri Lankan rupees, according to the CBSL.
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, said the BB official.
The amount would be used for import payments, the high-up pointed out.
Bangladesh’s import bill with Sri Lanka is $50-55 million a year, the official said.
The CBSL is expected to return the amount in three months at the interest rate of LIBOR plus 2 percent. If the tenure goes up to six months, the interest rate will be LIBOR plus 2.5 percent.
LIBOR, the acronym for London Interbank Offer Rate, is the global reference rate for unsecured short-term borrowing in the interbank market and acts as a benchmark for short-term interest rates.
This week, the three-month LIBOR is 0.14 percent and the six-month LIBOR 0.18 percent.
This currency swap agreement is a good deal for the BB, which has a record $45 billion in its coffers, according to the official.
“All our investments right now bear interest of less than 1 percent, whereas this is paying more than double of what we get,” the official said.
The injection of dollar from Bangladesh would be a great relief for Sri Lanka, which has $3.7 billion of foreign debt maturing this year. It had about $4 billion in foreign currency reserves at the end of April.
The coronavirus pandemic has deprived Sri Lanka — whose economy contracted 3.6 percent in 2020, its worst growth performance on record — of important sources of foreign currency such as tourism and exports.
Its $4.5 billion tourism industry, which was already reeling from the 2019 Easter Sunday bombings that killed 279 people, was hit particularly hard, while its exports were down by about 17 percent in 2020.
The Sri Lankan government anticipated such a situation soon after the coronavirus began to put down its roots all over the world, and Colombo imposedimport restrictions on non-essential items from March last year.
Subsequently, it is hunting high and low for dollars to shore up its reserves, which is enough to cover import bills for about three months.
So far, Colombo has managed a 10-billion-yuan ($1.5 billion) currency swap with China and a $500 million loan from South Korea, other than the deal with Bangladesh.
It has also applied for $780-800 million under the Special Drawing Rights facility of the International Monetary Fund.
