Nov 29, 2016

Central Bank finalises US$200 million currency swap with China

Sri Lanka Central Bank is nearing finalization of a US$200 million currency swap with Chinese Development Bank to boost foreign exchange reserves and help avert a balance of payments crisis.

The country is in need of strengthening foreign exchange reserves which is stood at $6.1 billion even after allowing the rupees to float in market fluctuations .

The country is struggling to tackle heavy debt piled up under the previous government and its debt servicing gradually becoming unbearable, economists said.

The terms of the currency swap agreement have already been negotiated and the contract has been forwarded to the Attorney General’s Department for legal clearance, Central Bank Governor Indrajit Coomaraswamy announced in Colombo today. The agreement will be signed early next year he added.

The Asia Development Bank has estimated that Asia will need $8.3 trillion beyond existing financing capabilities between 2010 and 2020.

In this context, Chinese loans may be an important lifeline for countries that have not managed to secure access to financing from the ADB or World Bank.

The Cabinet Committee on Economic Management has directed the Treasury to explore ways and means of mobilising Exim Bank and China Development Bank investment for new projects, as well as strengthening cash flow and liability management of ongoing projects.

long term borrowing from China at interest rates ranging from 2-3% and 6-7% under strict conditions laid down by Chinese lending institutions was the only option available to the then Sri Lankan government to implement post-war development projects in North, East and the South.

On the other hand the country has received several soft loans from China at an interest rate of 2-3% with maturity terms of 20 years, with 5 years expandable on condition, and 2-5 years grace period official data showed.

The country has also obtained concessionary loans at an interest rate of London Interbank offered Rate (LIBOR) plus basis points, which is negotiable to condition, 12-15 years as terms, and 2-5 years grace period, and the financing has been covered by an insurance premium issued by Chinese Sinosure, a state-owned insurance company for import-export business.