India confirmed a $400 million currency swap with Sri Lanka while deferring another $500 million due for settlement to the Asian Clearing Union (ACU), in a move aimed at helping the island nation witnessing an unprecedented economic crisis.
About:
India’s assistance follows a request from Sri Lanka during Finance Minister Basil Rajapaksa’s visit to New Delhi in December, for emergency financial assistance, including Lines of Credit for importing essentials and a currency swap to boost Sri Lanka’s draining foreign reserves.
Sri Lanka is facing a severe dollar crunch that economists say might lead to a default on external debt and create a food shortage in the imports-reliant nation.
Colombo must service over $7 billion outstanding debt in 2022, including bond repayments of $500 million in January and $1 billion in July.
In July 2020, the RBI extended a similar swap facility — of $400 million — to help Sri Lanka cope with the impact of the first wave of the pandemic, and later provided a three-month roll over until February 2021, when the Central Bank of Sri Lanka settled it.
The recent announcement on RBI assistance includes deferring the payment of $500 that Sri Lanka owes to the ACU, a regional initiative with the Central Banks and Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka.
Significantly, India’s confirmation of the swap comes a week after the two countries signed a long-pending agreement on jointly developing the strategically located Trincomalee oil tank farm along the north-eastern coast of the island.
Dear Student,
You have still not entered your mailing address. Please enter the address where all the study materials will be sent to you. (If applicable).