$400mn currency swap approved

nNEW DELHI: India on Saturday announced it had finalised a $400-million currency swap facility for Sri Lanka under the Saarc framework, and people familiar with the matter said Colombo’s request for a bilateral swap facility for $1.1 billion is being considered.

The Reserve Bank of India signed documents for giving effect to the currency swap facility for the Central Bank of Sri Lanka on Friday. The arrangement will remain available till November 2022, and the Indian mission in Colombo informed senior officials of the Central Bank of Sri Lanka about the decision. This currency swap was extended by India following a request from the Sri Lankan side for the facility under the South Asian Association for Regional Cooperation (Saarc) Currency Swap Framework in order to cope with the impact of the Covid-19.

During a phone conversation with Prime Minister Narendra Modi on May 23, Sri Lankan President Gotabaya Rajapaksa had asked India to provide a special swap facility of $1.1 billion “to top up the $400 million under the Saarc facility”.

One of the people cited above said on condition of anonymity: “While the agreement for the currency swap under the Saarc framework has been concluded, the bilateral swap request for $1.1 billion is being considered.”

A statement issued by the Sri Lankan president’s office in May had quoted Rajapaksa as saying the special swap of $1.1 billion “would enormously help Sri Lanka in dealing with our foreign exchange issues”.

A currency swap facility helps a country obtain foreign currency loans at better interest rates than by borrowing directly from the market, and repayment is done at the exchange rate fixed at the time of borrowing. This eliminates risks due to fluctuations in exchange rates.

Sri Lanka has made several requests for assistance from India after the Covid-19 pandemic devastated its tourism industry.

RBI’S currency swap arrangement for Saarc states has a corpus of $2 billion.