Sri Lanka receives US$ 1.5 billion currency swap from China - Opportunity Sri Lanka
Sri Lanka receives US$ 1.5 billion currency swap from China

Sri Lanka receives US$ 1.5 billion currency swap from China

China last week approved the long-awaited US$ 1.5 billion swap that is expected to boost Sri Lanka’s flagging reserves, State Minister of Money, Capital Markets, and State Enterprise Reform Ajith Nivard Cabraal has reportedly stated.
The State Minister tweeted: “Happy to confirm that the People’s Bank of China has approved a #swap facility of 10 billion #Yuan ($1.5billion) to the Central Bank of Sri Lanka. @CBSL @ChinaEmbSL #lka #SriLanka #China #economicrecoveryplan #GOSL.”

The approval comes after months of negotiations between the central banks of the two countries.
Earlier this month Central Bank of Sri Lanka (CBSL) officials had said reserves had fallen to about US$ 4.6 billion and Sri Lanka needed to repay about US$ 3.7 billion worth of debt for the rest of 2021. The next largest repayment of US$ 1 billion is due in July, the Daily FT reported.
According to local media reports, Sri Lanka’s depleting reserves had caused debt sustainability concerns, worsened after multiple ratings downgrades last year.
However, the Sri Lankan Government had stated multiple times that it was in the midst of arranging for two swaps from China and India. It is unclear whether the $ 1 billion swap from India will materialise. The Central Bank repaid a US$ 400 million swap it had obtained from India in 2020 last month.
Rating agencies, Opposition politicians and other stakeholders had warned that Sri Lanka needs to come up with a sustainable debt repayment strategy given its commitments over the next five years and also focus on the quality of reserves, the Daily FT further stated.

OSL take:

The currency swap would address several key and immediate financial urgencies faced by Sri Lanka as well as lay to rest any fears about the island meeting its debt commitments. Sri Lanka’s economy has shown great resilience to external and internal challenges through the years and is already showing strong signs of returning to normalcy after facing the impact of the global Covid 19 pandemic. The island is also on the path to becoming a business hub in the South Asian region given its geographical positioning in the Indian Ocean and the many trade agreements as well as trade concessions enjoyed by the country. Foreign businesses/investors could therefore confidently explore business/investment opportunities in Sri Lanka.

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Article Code : VBS/AT/20210319/Z_3

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