Foreign exchange crisis: Bangladesh lends $250 million to Sri Lanka

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Bangladesh central bank will lend $50 million to under-pressure Sri Lanka this week as part of Bangladesh’s efforts to support the Island nation suffering from a foreign exchange crisis, Bangladesh media The Daily Star reported. 

It further reports that the credit under the first-ever loan to any country from Bangladesh will be given under the currency swap agreement inked by the Bangladesh Bank and the Central Bank of Sri Lanka (CBSL) on August 3.

As per the deal, the Bangladesh Bank will provide a total of $250 million to help prop up the island nation’s fast-depleting foreign reserves and ease pressure on its exchange rate.

The financing will be given in three phases. The first tranche of the loan will be given this week, according to a top official of the central bank. The remaining two tranches will involve $100 million each.

Seeking anonymity, the Bangladesh Bank official said the central bank would give the first tranche for three months. If the Sri Lankan Bank fails to repay the loan within the deadline, it will get three more months to repay. If it fails to pay back again, it will be given three more months.

The CBSL will return the amount in three months at the interest rate of the London Interbank Offered Rate (Libor) plus 2 per cent. If it can’t honour the deadline, the interest rate will not change.

But if the tenure goes up to six months, the interest rate will be Libor plus 2.5 per cent.

If the CBSL fails to return the money, the Sri Lankan government will pay back the loan as per the state guarantee attached in the agreement, the BB official said, adding the outstanding balance limit will never exceed $200 million. He said Bangladesh was not extending the loan for any commercial purpose.

Because of the foreign exchange crisis, the Sri Lankan government imposed an indefinite import ban in March last year to save hard currency, according to the financial newspaper Nikkei Asia.

Read more at $250m currency swap: Sri Lanka gets first tranche of $50m this week

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