The Central Bank of Sri Lanka (CBSL) reveals that it has reached an understanding with the People’s Bank of China (PBoC) to treat the date of expiration of the CNY 10 billion (equivalent to $ 1.5 billion) bilateral currency swap as end-December this year, rather than the original date of expiration of 18 March.
Speaking to The Sunday Morning Business, CBSL International Operations Department Director Dr. D.S.T. Wanaguru revealed that the CBSL had reached an understanding with the PBoC to treat the three-year validity period of the swap facility as commencing from the moment it was drawn down in December 2021, instead of the date when the swap facility was signed by the parties, which was 19 March 2021.
Accordingly, although the swap facility was originally scheduled to expire on 18 March this year under the understanding reached between the CBSL and the PBoC, the swap facility will be valid until the end of December 2024.
Commenting on the possibility of extending or renewing the bilateral currency swap beyond December 2024, Dr. Wanaguru revealed that arrangements were being made to extend the bilateral swap.
“Arrangements have been made to extend the swap facility. We have time until December 2024 to do it,” she added.
Amidst intense criticism from the Opposition and the public regarding the dire status of Sri Lanka’s foreign reserves position as of the end of 2021, former Governor of the CBSL Ajith Nivard Cabraal took steps to draw down the entire swap facility to prop up Sri Lanka’s foreign reserves assets on paper.
However, to date, the amount drawn down under the CNY 10 billion swap facility with the PBoC remains unusable due to certain usage conditionalities included therein. Accordingly, three years after signing the swap facility, one would not be remiss in concluding that the utility of this swap facility has been limited to a decorative addition to the country’s official reserve assets.
According to AidData, the CBSL had initially agreed with the PBoC in September 2014 to facilitate trade and improve foreign currency liquidity in Sri Lanka. The swap agreement had not been extended in 2017. Thereafter, on 19 March 2021, the CBSL once again entered into a CNY 10 billion bilateral currency swap agreement with the PBoC.
AidData reports that the three-year CNY 10 billion swap facility entered into in 2021 had an initial maturity of one year, but the CBSL had the option of rolling over the debt multiple times within the facility’s three-year validity period with no interest being charged under the swap agreement because it was considered as a ‘standby agreement’.
Source: Themorning
