Bangladesh Srilanka $200 Million Currency Swap Deal..

Bangladesh Bank, Bangladesh’s central bank, has in principle approved a $200 m currency swap agreement with Sri Lanka, Which will help Colombo tide over its foreign exchange crisis. Sri Lanka, staring at an external debt repayment schedule of $4.05 m this year, is in urgent need of foreign exchange. Its own foreign exchange reserves in March year stood at $4m.
The two sides have to formalize an agreement to operationalise the facility approved by Bangladesh bank. Dhaka decided to extend the facility after a request by Sri Lanka Prime Minister Mahinda Rajapaksa to Bangladesh’s Prime Minister Sheikh Hasina.
CURRENCY SWAP
In this context, a currency swap is effectively a loan that Bangladesh will give to Sri Lanka in dollars, with an agreement that the debt will be repaid with interest in Sri Lanka rupees. For Sri Lanka, this is cheaper than borrowing from the market, and a lifeline as is it struggles to maintain adequate forex reserves even as repayment of its external debts looms. The period of the currency swap will specified in this agreement.

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