Government to sign swap deal with China for US$ 1.5 billion; India deal unlikely

China Sri Lanka flags

Sri Lanka will next week sign an agreement with China’s Central Bank – the People’s Bank of China – for a swap arrangement amounting to US$ 1.5 billion.

The move came as the Government is looking at measures to bridge the gap of another US$ 1 billion. The Sri Lankan Central bank was expecting this from India, but it is now unlikely, a senior Central Bank official said.

Under the swap arrangement with China, the funds are expected to be made use of to maintain the foreign reserves and for imports from China, the official said.

The money is to be paid back within three and half years.

A currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies. The parties are essentially loaning each other money and will repay the amounts at a specified date and exchange rate.

Sri Lanka’s request to the Reserve Bank of India for a currency swap of US$ 1 billion has so far drawn no response and the facility was unlikely to be received now, the official said.

He said that in view of the shortfall, the Central Bank was taking other measures including negotiating similar swap arrangements with other countries while continuing with other measures such as reducing imports.

Vehicle import restrictions were among the measures and will be continued until further notice, he added.

The Chinese swap arrangement would be useful to maintain a balance throughout the year, he said.

Meanwhile, Sri Lanka plans to review eight trade agreements including two which have been stalled midway.

The controversial Indo-Sri Lanka Economic and Technology Cooperative Agreement (ETCA) and the China-Sri Lanka Free Trade Agreement which were stalled would be reviewed with the objective of renegotiating them, Trade Minister Bandula Guanwardena said.

The China FTA talks were halted in 2017 after six rounds of discussions while the ETCA was suspended in 2018 after 12 rounds of discussions.

Another trade agreement with Thailand would also be reviewed.

The India-Sri Lanka FTA effective from 2000 and the Pakista- Sri Lanka FTA effective from 2005 are among other agreements to be reviewed.

Mr Gunawardena said the objective of reviewing the agreements was to ensure that Sri Lanka benefited from the agreements currently in place as well the proposed agreements.

“If there are clauses which are not beneficial to the country, we need to revise them,” he said .

The minister said a Commerce Department team along with an expert committee would review the agreements.

(Source: The Sunday Times – By Damith Wickremasekara)