Business

‘Chinese swap was deceitful’

  • PM Ranil says officials deceived public by obtaining $ 1.5 b Yuan swap
  • Notes forex to cover three months’ imports required to utilise money

 

By Imesh Ranasinghe 

The currency swap worth $ 1.5 billion provided by China in December 2021 was entered into by officials of the then-Government to deceive the public, as Sri Lanka is required to have enough foreign reserves to cover three months of imports to utilise the swap, Prime Minister Ranil Wickremesinghe said.

Speaking yesterday (7) in Parliament, the Prime Minister said that by the time the swap was provided by the People’s Bank of China (PBoC) in December 2021, Sri Lanka didn’t have foreign currency to cover three months of imports.

“But even in such circumstances, our officials took a loan to deceive the country,” he said.

Moreover, he said that based on the conditions put forward by China, to which Sri Lanka had agreed, the latter cannot use the funds, but rather only add numbers to its foreign reserves.

“We have requested the Chinese Government to consider removing those conditions,” Wickremesinghe said.

Speaking at an event held by the Central Bank of Sri Lanka (CBSL) last week, the former CBSL Governor Dr. Indrajith Coomaraswamy said that China would not be willing to alter the conditions that render the three-year swap unusable in the near future, as it could then be termed a loan facility, and thus Sri Lanka would come under pressure from the International Monetary Fund (IMF) and others to include it in the stock of debt to be restructured.

Therefore, he said that it would make China hesitate in terms of removing that condition to enable Sri Lanka to use that money, as it would clearly be a disadvantage for China.

He added that it would be a challenge to convert the swap of Chinese Yuan (CNY) 10 billion into a usable form.

CBSL and PBoC entered into a currency swap agreement for CNY 10 billion in March 2021, valid for three years, “with a view to promoting bilateral trade and direct investment for economic development”. 

However, a statement issued by CBSL after the swap agreement was signed, said that both central banks agreed to use the swap “for other purposes agreed upon by both parties”. 

This swap agreement was approved by the Cabinet at the time, on the recommendation of the CBSL’s Monetary Board. 

The amount under the swap agreement ($ 1.5 billion) was included in the CBSL’s official foreign reserves in December 2021, raising reserves to $ 3.1 billion by the end of 2021 and Sri Lanka should at least have $ 4.5 billion in foreign reserves to cover three months of imports. 

Sovereign debt restructuring negotiations with the London club that is going to be the most difficult negotiations that we will have, he added.