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B’desh-SL swap first tranche this week

19 Aug 2021

  • $ 50 m out of agreed $ 250 m to be released
  • Remaining two tranches to release $ 100 m each
Bangladesh’s Central Bank (BB) will lend $ 50 million to Sri Lanka this week as part of the country’s efforts to support the island nation suffering from a foreign exchange crisis, The Daily Star reports. The credit under the first-ever loan to any country from Bangladesh will be given under the currency swap agreement between Bangladesh and the Central Bank of Sri Lanka (CBSL) on 3 August. As per the deal, $ 250 million will be provided to help prop up the island nation’s fast-depleting foreign reserves and ease pressure on its exchange rate. The financing will be given in three phases. The first tranche of the loan will be given this week, according to a top official of the Central Bank. The remaining two tranches will involve $ 100 million each. Seeking anonymity, a BB official said the Central Bank would give the first tranche for three months. If the CBSL fails to repay the loan within the deadline, it will get three more months to repay. If it fails to pay back again, it will be given three more months. The CBSL will return the amount in three months at the interest rate of the London Interbank Offered Rate (Libor) plus 2%. If it can’t honour the deadline, the interest rate will not change. But if the tenure goes up to six months, the interest rate will be Libor plus 2.5%. The Libor is the global reference rate for unsecured short-term borrowing in the interbank market and acts as a benchmark for short-term interest rates. This week, the three-month Libor is 0.14% and the six-month Libor is 0.18%. If CBSL fails to return the money, the Sri Lankan Government will pay back the loan as per the state guarantee attached in the agreement, the official said, adding the outstanding balance limit will never exceed $ 200 million. He said Bangladesh was not extending the loan for any commercial purpose. “It is being given to help a friendly SAARC member country which is in trouble. Bangladesh is, however, following the international best practices and maintaining due diligence.” The decision for the currency swap agreement was set in motion during Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh in March. As per the deal, the CBSL will hand over an equivalent amount of its currency, which depreciated 6.8% against the US dollar this year. The BB will open an account with a bank in the South Asian country to keep the sum, which will be around Rs. 49.5 billion, a BB official said earlier. The amount would be used for import payments. Bangladesh’s import bill with Sri Lanka is $ 50-55 million a year. The swap agreement is a good deal for the BB, which has a record $ 45.9 billion in its coffers as of 3 August. Under the agreement, Sri Lanka will pay more than double Bangladesh gets from all of its investments. (The Daily Star)


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