Global Rice News

Sri Lanka is set to get a fresh influx of over $ 1.2 billion to boost its official foreign reserves which have fallen to an alarmingly low level of $ 2.8 billion in the recent past.

Treasury Secretary S.R. Attygalle yesterday (31) announced that Sri Lanka was set to get an accumulated influx of $ 1.2 billion from the International Monetary Fund (IMF), Bangladesh, and China Development Bank (CDB).

He said the reserves would be strengthened by an inflow of $ 787 million from the IMF and a further $ 150 million from the pending tranches of a swap deal with the Bangladesh Bank (Central Bank), along with another RMB 2, 000 million (approximately $ 300 million) from CDB expected to be received yesterday.

Bangladesh Bank grants the loan under a currency swap agreement it entered with the Central Bank of Sri Lanka (CBSL). According to the aforesaid deal, Sri Lanka is to be granted a total of $ 250 million with the purpose of supporting the decreasing forex while easing the pressure on the exchange rate. The swap agreement was set when Prime Minister Mahinda Rajapaksa visited Bangladesh in March.

Further, the CBSL is obliged to return the amount $ 250 million within a period of three months for an interest rate of the London Interbank Offered Rate (Libor) plus 2%, while on the condition of six months delay, the interest rate would be Libor plus 2.5%.

The first tranche of the swap deal was said to be obtained a few days ago, where $ 50 million was expected to be received by the Central Bank, while the balance $ 200 million was said to be received in two tranches, $ 100 million each.

The swap deal with Bangladesh came under heavy criticism by the Opposition, as they noted that it is such a shame that Sri Lanka is going on state visits requesting loans from countries. The Opposition stated that Sri Lanka has fallen to such a low level to obtain loans from a country (Bangladesh) that used to export rice sacks to Sri Lanka.

On another note, commenting on this recent development, State Minister of Money, Capital Market, and State Enterprise Reforms Ajith Nivard Cabraal said on his official Twitter that these would improve liquidity and also stabilise.

He further stated: “Exporters and importers who expected LKR to depreciate would now do well to convert forex receipts early and phase out imports respectively.”

However, it was observed that in accordance with the CBSL, the Sri Lankan rupee depreciated further yesterday. Thus, the selling price of a US dollar remained at Rs. 204.89 while it was recorded as the highest selling rate against the US dollar thus far. The buying rate remained at  Rs.198.90.

Earlier, it was reported that there was a significant disparity between the transaction rates that were published in the CBSL website and those of the local commercial banks (LCB), creating confusion among both importers as well as exporters.

When it comes to the foreign reserves crisis, the CBSL and the Ministry of Finance took certain financial measures in policymaking, hindering the forex outflows.

In July, a gazette notification was issued by the Prime Minister, limiting the repatriation of emigrant funds to a maximum of $ 10,000 and the immigration allowance for migrants to a maximum of $ 30,000, while the issuance of foreign exchange was restricted for Sri Lankans who have residence or temporary residence visas in a country other than Sri Lanka for a maximum of $ 20,000.

Further, the Special Deposit Account (SDA) facility initiated in April 2020, in which the interest rate remained at 2%, was raised by another 2% for a period of 10 months for SDAs that have been reinvested for more than 12 months, in the same month, in the face of diminishing reserves, following cabinet approval being granted to make an order as per the terms of Section 7(1) of the Foreign Exchange Act No. 12 of 2017 to include the provision for the increased rate of interest on SDAs.