Home ›› 19 Apr 2022 ›› Front
In case of Sri Lanka’s failure to repay $ 200 million taken under the currency swap agreement, the Bangladesh Bank has nothing to worry about as an equal amount of Lankan Rupee is deposited with the central bank.
“There is no uncertainty about getting back the fund as long as Sri Lanka exists since the currency swap deal has been state to state,” said Bangladesh Bank Executive Director and Spokesperson Md Serajul Islam.
“The BB holds $ 200 million equivalent amount of Sri Lankan Rupee under the agreement. If the country fails to repay the foreign currency, the central bank will be able to import goods from the country by using their currency.”
In reply to a question, Serajul stated that the crisis-hit country has time till June to repay the loans but if they fail to do so, the central bank may extend the deadline on humanitarian grounds.
The Bangladesh Bank has already extended the repayment deadline by one year to June this year. The island country was supposed to make loan repayment within three months, but it failed to do so.
As per the currency swap agreement, the central bank released the first tranche of $ 50 million on August 19 last year; $ 100 million as a second installment on August 30 and $ 50 million as the third installment in September last year to support the country.
Another high official of the central bank’s Forex Reserve and Treasury Management Department told The Business Post the Bangladesh Bank won’t exert any pressure on the crisis-hit nation this time to repay the loans.
The loans would be rescheduled after June this year, he added.
The currency swap agreement had it when Sri Lankan Prime Minister Mahinda Rajapaksa visited Bangladesh to join the Golden Jubilee celebrations of Bangladesh’s independence, and the BB approved it in May last year.
As per the agreement, Sri Lanka kept the same amount of its local currency Rupee deposited with the Bangladesh Bank along with a government guarantee and the BB was supposed to receive an interest payment of LIBOR plus 2 per cent if the amount was returned in three months.
LIBOR refers to London Interbank Offer Rate which is the global reference rate for unsecured short-term borrowing in the interbank market as a benchmark for short-term interest rates.
The three-month LIBOR averaged around 0.53 per cent in 2021. Industry insiders said the interest amount would have been LIBOR plus 2.5 per cent if Sri Lanka paid back in six months but it failed.
The island country sought another $ 250 million from the Bangladesh Bank but the latter rejected the proposal considering the present downtrend situation of Bangladesh’s forex reserve.
Present situation of Sri Lanka
The country with $ 80 billion economy has turned default, thanks to the alchemy of tax cuts, foreign currency-denominated debt pile-up and unforeseeable circumstances like the global coronavirus pandemic and Russia’s invasion of Ukraine.
In March, Sri Lanka’s foreign currency reserve fell to $ 1.94 billion, just enough to pay a month’s import bill.
The Fitch Ratings lowered its assessment of the South Asian nation, saying “a sovereign default process has begun”.
It latest rating puts Sri Lanka at “near default” and indicated that its “payment capacity is irrevocably impaired”.
S&P Global Ratings made a similar announcement and said a default is now a “virtual certainty”.
Present situation of Bangladesh forex reserves
The foreign exchange reserves of Bangladesh are now declining day by day due to the growing import payment and downward trend in remittance earning.
As of April 12 this year, the foreign exchange reserves stood at $ 44.26 billion, down from $ 46 billion on February 28 this year, as per the latest data from the Bangladesh Bank.
The import payment rose sharply by 52.01 per cent to $ 52.60 billion in July to February period of the current fiscal year.
On the other hand, remittance inflow fell by 19.5 per cent to $ 13.44 billion in July to February of this fiscal, as per the BB data.
Besides, the Bangladesh Bank sold $ 4.36 billion from its reserves to the country’s banks to stabilise the foreign exchange market.
