Bangladesh completes currency swap | Daily News

Bangladesh completes currency swap

The Bangladesh Bank (BB) on Tuesday completed disbursement of the US$ 200 million bailout fund to Sri Lanka amid a deepening foreign reserve crisis in the country.

“The Central Bank on Monday released the last tranche of the US$ 200 million loan and it was supposed to be released by the Federal Reserve Bank of New York by Tuesday,” a senior BB official told the New Age on Tuesday.

The third tranche was worth US$ 50 million.

On August 19 in 2021, the BB released US$ 50 million as the first tranche under a currency swap deal to support Sri Lanka and another US$ 100 million as a second installment on August 30 in 2021.

The initial tenure of the currency swap agreement was fixed at three months while the agreement contained a rollover condition, allowing Sri Lanka to extend the period of repayment of the financing facility.

 Sri Lanka may utilise the fund for around one year and then return the money along with interest, the BB official said.

The Central Bank of Sri Lanka, in a statement, stated that there was a possibility of extending the facility twice.

The impact of the COVID outbreak has been devastating on the island nation’s economy which contracted by 3.4 per cent in 2020.

Tourism, a major source of Sri Lanka’s foreign currency, has been the worst affected sector as the Covid situation is yet to come under control.

An economic crisis coupled with a poor reserve amounting to less than two months’ import payments also prompted credit rating agencies to downgrade the country’s rating and to question whether Sri Lanka would be able to service the US$ 1.5 billion line of debt that matures in 2022.

The currency swap initiative was taken after Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh to join the celebrations of the Golden Jubilee of Bangladesh’s Independence.

Apart from receiving US$ 200 million from Bangladesh, the island nation also received another US$ 787 million from the International Monetary Fund’s Special Drawing Rights (SDR) allocation.

Apart from the fresh phase of the crisis, Sri Lanka has had no default events (on bonds or loans) since 1983.

On the other hand, Bangladesh’s reserve has been growing rapidly after the Covid outbreak whereas Sri Lanka’s reserve has come under increasing pressure.

Foreign tourists were staying away after deadly suicide bombings in Sri Lanka on Easter Day in 2019, killing more than 250 people. But efforts to revive the industry failed after the pandemic struck.

On Tuesday, Bangladesh’s foreign exchange reserve stood at US$ 46.3 billion after hitting a record high of US$ 48 billion from around US$ 33 billion one and a half year ago.

On the other hand, the reserve of Sri Lanka, which is facing a sharp trade deficit, declined to around US$ 3 billion by the end of August 2021. (New Age Bangladesh)


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