The central bank of Sri Lanka has lent $400 million in a currency swap. The reserve bank of India concluded the deal by signing all relevant documents. The arrangement, intended to take the country out of the crisis, will mature till November 2022.
Indian High Commission In Colombo
Earlier, the Indian High Commission in Colombo passed this information to the central bank of Sri Lanka along with senior officials in the government. On July 22, the commission also hosted a discussion regarding bilateral debt payment by Sri Lanka as per the High Commission statement.
In the statement, the Indian high commission expressed high hoped in the mutual commitment in the Face of the pandemic. Also, a mutually beneficial partnership among the two countries was encouraged.
Historical Context
PM Narendra Modi and President of Sri Lanka, Gotabaya Rajapaksa held a telephonic meeting on 23 May. In which, President Gotabaya asked for $ 400 million under SAARC arrangement. Moreover, $ 1.1 billion were sought in a bilateral currency swap. India assured assistance in combating pandemic and its economic impact to Sri Lanka.
Recently China offered Sri Lanka an extension of $ 500 million in loans at a concessional rate. To which both local and international audience was skeptical. It was perceived to be a debt trap since China is already one of the biggest investors in infrastructure projects locally.
Increasing Foreign exchange outflows
Unable to grow foreign exchange reserves or keeping them intact, Sri Lanka has sought financial assistance. The economy of Sri Lanka has hit a speed bump ahead of the pandemic.
Also, the tourism industry in the country has taken a beating at the hands of the pandemic, which has further deteriorated the foreign reserves.
