China has approved the long-awaited $ 1.5 billion swap that is expected to boost the country’s flagging reserves, State Minister of Money, Capital Markets, and State Enterprise Reform Ajith Nivard Cabraal said yesterday.
The State Minister tweeted: “Happy to confirm that the People’s Bank of China has approved a #swap facility of 10 billion #Yuan ($1.5billion) to the Central Bank of Sri Lanka. @CBSL @ChinaEmbSL #lka #SriLanka #China #economicrecoveryplan #GOSL.”
The approval comes after months of negotiations between the central banks of the two countries. Earlier this month Sri Lanka Central Bank officials said reserves had fallen to about $ 4.6 billion and Sri Lanka needed to repay about $ 3.7 billion worth of debt for the rest of 2021. The next largest repayment of $ 1 billion is due in July. Sri Lanka’s depleting reserves had caused debt sustainability concerns, worsened after multiple ratings downgrades last year. However, the Sri Lankan Government had stated multiple times that it was in the midst of arranging for two swaps from China and India. It is unclear whether the $ 1 billion swap from India will materialise. The Central Bank repaid a $ 400 million swap it had obtained from India in 2020 last month.
Rating agencies, Opposition politicians and other stakeholders had warned that Sri Lanka needs to come up with a sustainable debt repayment strategy given its commitments over the next five years and also focus on the quality of reserves.
(FT)