In what comes as a significant relief to the embattled Sri Lankan economy, Bangladesh Bank (BB) has extended the validity of the $200 million credit facility it had extended to Sri Lanka by three months. The move came at a time when the Sri Lankan government has been struggling to shore up its foreign exchange reserves.  

The extension was granted after Dhaka received a request from the same from Colombo. The credit facility was to be delivered in three tranches to Sri Lanka: 50 million US dollars on August 19, 100 million dollars on August 30, and the final 50 million dollars on September 21, reported Economy Next.

In November, Sri Lanka’s foreign exchange reserves came down to $1.56 billion—barely enough for a month of imports of essentials, including fuel and food. From shipping companies to airlines, and oil firms, all are struggling in getting letters of credit issued from Sri Lankan banks.   

As per the agreement with Bangladesh earlier this year, Dhaka will receive 2 percent plus LIBOR (London Inter-Bank Offered Rate) as interest on the credit amount. If the installment principal remains unpaid even after six months, the applicable interest would be 2.5 percent plus LIBOR, New Age reported.

“Our assessment is that Sri Lanka would use the fund for at least nine months,” New Age quoited a senior Bangladesh Bank official. 

Both countries agreed to the currency swap deal when  Sri Lankan Prime Minister Mahinda Rajapaksa visited Bangladesh in April to join the celebrations of the golden jubilee of Bangladesh’s independence. 

It had signed a similar currency swap agreement amounting to $1.6 billion with China. However, with India, one of its most important allies in the region, it is still negotiating terms. Furthermore, it also received another $ 787 million from the International Monetary Fund’s special drawing rights (SDR) allocation to boost its reserves in September.

(SAM)