Sri Lanka’s Central Bank Governor says Bangladesh and India swaps
Sri Lanka’s Central Bank Governor says Bangladesh and India swaps in July and August

Sri Lanka’s Central Bank Governor says Bangladesh and India swaps in July and August

Governor of the Central Bank of Sri Lanka (CBSL), Prof. W. D. Lakshman has reportedly stated that the prevailing foreign currency liquidity shortage in the domestic market as an “assumed shortage,” and that adequate financing strategies have been lined up to maintain reserves at sufficient levels which includes expected swaps from Bangladesh and India in July and August this year, respectively.
Dismissing reports on “shortage” citing they are negative viewpoints that are causing harm to the country, the Governor had noted that the Central Bank’s focus is managing Sri Lanka’s debt service obligations, according to The Morning.
“Our Gross Official Reserves remain at $ 4 billion, without considering the standby SWAP agreement of approximately US$ 1.5 billion with the People’s Bank of China,” he has been quoted as saying.
Elaborating on how the Sri Lankan government is planning to meet its external obligations, the Governor has further noted that non-debt inflows are expected within a short period of time to the Government, particularly through its new investment arm, and other inflows to the Government from multilateral and bilateral sources.
Accordingly, inflows expected to the Central Bank include the SWAP facility of US$ 250 million from the Bangladesh Bank expected in July 2021, the SAARC Finance SWAP facility from the Reserve Bank of India of US$ 400 million expected in August 2021, and the special SWAP facility of US$ 1,000 million being negotiated with the Indian counterpart.
The CBSL Governor has further noted that these are in addition to the receipt of around US$ 800 million under the International Monetary Fund (IMF) SDR allocation expected in August 2021, and the Central Bank purchases of export proceeds and worker remittances from the market, which would help the Central Bank to build Official Reserves through non-debt inflows of around US$ 700 million annually in the period ahead.
He has reportedly indicated that around 30% of upcoming ISB maturities (in July 2021) are held by residents.
Prof. Lakshman has added that as a result of the measures taken by the Sri Lankan government and the Central Bank in the past one and a half years to preserve the reserves, the government has been able to substantially reduce its foreign debt to GDP ratio to about 40% and the face value of foreign debt from US$ 34.1 billion at end 2019 to US$ 32.2 billion by end March 2021, while “successfully” meeting its maturing debt service obligations.

OSL take:

The currency swaps with Bangladesh and India are indicative of the level of confidence international partners have on Sri Lanka. The country’s economy has shown great resilience through the years and is once again on the path to recovery after facing the impact of the global Covid 19 pandemic. In fact several economic sectors in Sri Lanka have shown a growth momentum even amidst the pandemic. Sri Lanka is fast becoming a business hub in the South Asian region given it’s geographical positioning in the Indian ocean and the many trade agreements as well as trade concessions enjoyed by the country. Given the aggressive development programme launched by the government of Sri Lanka and the continuous improvement in Sri Lanka’s ease of doing business environment, foreign businesses/investors could confidently explore business/investment opportunities in the country.

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Article Code : VBS/AT/02072021/Z_6

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