Sri Lanka repays $50M to Bangladesh, starting repayment for $200M currency swap agreed in August 2021.

The repayment arrives over a year and a half later than initially scheduled, underscoring the delay in fulfilling the terms of the agreement.

The subsequent payment is anticipated within a fortnight, although the exact amount has not been disclosed.

In the original terms of the currency swap pact, Sri Lanka was obligated to reimburse the entire loan within a span of three months. 

However, the country’s economic hardships led to extensions in the repayment timeline as its financial situation grew increasingly dire.

Bangladesh’s willingness to provide financial support was evident in the disbursement of the loan across three instalments in 2021: the initial $50 million in August, followed by $100 million just 11 days later, and a final $50 million in September.

The agreement initially set repayment by end-2021 with LIBOR + 2% interest, but LIBOR ceased on June 30, replaced by SOFR.

As the economic challenges in Sri Lanka persisted, the repayment terms were repeatedly extended. 

An extension was granted in May of the previous year, pushing the deadline to September, with a revised interest rate of LIBOR + 2.5%.

Interestingly, this repayment coincides with a prospective economic revival in Sri Lanka. 

The central bank anticipates increasing economic growth in the upcoming quarter, following six consecutive quarters of contraction. 

Concurrently, the nation is witnessing an upsurge in overseas remittances and a gradual increase in tourism figures.

On the other hand, Bangladesh’s economic condition has taken a turn for the worse since it initially extended financial aid to Sri Lanka in May 2021. 

Bangladesh’s robust reserves could have covered more than nine months of imports at that juncture. 

Presently, reserves stand at $23.14 billion as of August 16, offering coverage for just over three months’ worth of imports.