For the first time in its history, Bangladesh is set to become a lender by approving a currency swap of $200 million to Sri Lanka, which is struggling with its foreign exchange crisis.
The agreement was approved by the Bangladesh Bank under special consideration after Colombo requested emergency liquidity from Dhaka.
The relief comes amid reports that Sri Lanka is at the risk of defaulting after global rating agency S&P cut the nation’s long-term foreign currency credit rating from B- to CCC+ last year.
#Bangladesh becomes a lender for the first time: The central bank will provide $200 million loan to #SriLanka from its #forex reserve. This is the 1st time BD is making such an #investment in a country through a currency swap deal. https://t.co/anog4kruma#SouthAsia #Tiger
— Shah Ali Farhad 🇧🇩 (@shah_farhad) May 26, 2021
The coronavirus pandemic has been particularly hard for the island nation’s tourism-dependent economy, with its $3.7 billion of foreign debt maturing this year. The nation was deprived of precious foreign currency during the period which mostly comes from tourism and trade.
Experts say the currency swap of $200 million in dollars is effectively a loan that Sri Lanka will have to return to Bangladesh within three months in Sri Lankan rupees.
Experts say it will be cheaper for the Rajapaksa government to lend from Dhaka than from the market as the country struggles to maintain adequate forex reserves.
On the other hand, Bangladesh’s foreign currency reserves have witnessed a record growth even during the pandemic and crossed $45 billion for the first time this April. The country was in news recently for surpassing its neighbor India in GDP per capita, which has now increased from $2,064 to $2,227 this year — $280 more than India.
Dhaka had sent medical aid to India when the second wave had taken its toll on the country’s health infrastructure recently. Bangladesh is expected to register strong GDP growth of 5.2 percent this fiscal and is expected to grow by 6.8 percent in 2021, while other countries struggle to cope with the pandemic.
Emerging from the status of an impoverished country into the economic powerhouse it is today, Dhaka has come a long way in the last two decades. The country maintained strong exports consistently, especially in its garments industry, surpassing both India and Pakistan.
The country is touted as a South Asian development model similar to South Korea, China, and Vietnam, which also had export-led economic models proving successful in overall prosperity.
Meanwhile, Sri Lanka had also requested a bigger loan amount from India last year, which the reports said is still pending with the Indian government. The country also secured a $500 million loan from South Korea early this month, after seeking a similar amount from China as the island nation battles debt crisis.