Bangladesh is expected to get back the money, which was borrowed by Sri Lanka, from September this year as the country’s economic situation is improving, Bangladesh Foreign Minister AK Abdul Momen has said.
“Sri Lanka is gradually doing better. They are recovering slowly,” Foreign Minister AK Abdul Momen told reporters.
On January 12 this year, Bangladesh Bank granted Sri Lanka six more months to repay the loan after the Island nation requested to extend the repayment period due to its prolonged economic crisis.
In a friendly gesture, Bangladesh extended the loan to cash-strapped Sri Lanka under a currency swap arrangement in 2021.
Bangladesh remains hopeful that Sri Lanka will repay the debt of $200 million that it owes to the country by September 2023,and it was supposed to return in three instalments in February and March 2023.
Although Sri Lanka was due to make the repayment earlier, Bangladesh extended the deadline for repayment in light of the crippling economic crisis which had plagued Sri Lanka.
Bangladesh Bank, Bangladesh’s central bank, has in principle approved a $200 million currency swap agreement with Sri Lanka, which will help Colombo tide over its foreign exchange crisis, according to media reports from Bangladesh, quoting the bank’s spokesman.
Sri Lanka, staring at an external debt repayment schedule of $4.05 million last year year, is in urgent need of foreign exchange.
The two sides have to formalize an agreement to operationalize the facility approved by Bangladesh Bank. Dhaka decided to extend the facility after a request by Sri Lankan Prime Minister Mahinda Rajapaksa to Bangladesh’s Prime Minister Sheikh Hasina.
In this context, a currency swap was effectively a loan that Bangladesh has given to Sri Lanka in dollars, with an agreement that the debt will be repaid with interest in Sri Lankan rupees.
For Sri Lanka, this was cheaper than borrowing from the market, and a lifeline as is it struggles to maintain adequate forex reserves even as repayment of its external debts looms. The period of the currency swap will be specified in the agreement.
Bangladesh has not been viewed so far as a provider of financial assistance to other countries. It has been among the most impoverished countries of the world, and still receives billions of dollars in financial aid.
But over the last two decades, its economy has pulled itself up literally by the bootstraps, and in 2020, was the fastest growing in South Asia.
Bangladesh’s economy grew by 5.2 per cent in 2020, and was expected to grow by 6.8 per cent in 2021. The country has managed to pull millions out of poverty. Its per capital income just overtook India’s.
This may be the first time that Bangladesh is extending a helping hand to another country, so this is a landmark of sorts.
Bangladesh’s forex reserves were a healthy $45 billion. Despite fears that the pandemic would hit remittances, Bangladeshis living abroad sent over $21 billion. It is also the first time that Sri Lanka has borrowed from a SAARC country other than India.
