Sri Lanka gets another 6 months to repay $200m

Sri Lanka will get another six months to repay the $200 million loans as the Bangladesh Bank extended the repayment deadline as per the request from the crisis-hit nation.

A central bank board of directors meeting on Thursday approved the proposal to extend the deadline, which was supposed to end in March this year.

The Bangladesh Bank in 2021 provided the support to the island nation under a currency swap agreement.

Cash-strapped Sri Lanka will have to repay the loans by September this year, according to officials who attended the meeting.

The country will have to repay the interest every three months.

BB officials said that the crisis-hithit nation wanted another one year to repay the loans, but BB approved six months.

They said that after the island country failed to start the repayment process in time, the deadline was automatically extended to June last year in line with the agreement.

After the expiration of the previous tenure, BB then extended the deadline till March this year.

Hit hard by Covid-19 and short of revenue after steep tax cuts by the government, the South Asian island nation is critically short of foreign exchange and had sought an emergency bailout from the International Monetary Fund.

The country’s usable foreign reserves have also gone down to $50 million in the last year.

As per the currency swap agreement, BB released the first tranche of $50 million on August 19 of 2021, $100 million in the second installment on August 30, and $50 million in the third installment in September 2021.

The agreement was initiated during Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh in March 2021 when he joined the Golden Jubilee celebrations of Bangladesh’s independence. BB approved the loans in May of that year.

As per the agreement, Sri Lanka deposited the same amount of its local currency Rupee to the BB along with a government guarantee. 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 and acts 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 BB. But that request was rejected considering the present downtrend situation of Bangladesh’s forex reserves.