• 1: Expresses concerns about potential restrictions and IMF treatment inconsistencies
• 2: Calls for transparency and scrutiny in swap arrangements; highlights SL’s inexperience

The US Treasury states that there is lack of transparency in Chinese foreign exchange swaps similar to the arrangement with Sri Lanka and urged the International Monetary Fund (IMF) to be wary of simply including them in its calculations of official reserves for developing nations.

According to a statement by US Treasury Department International Finance Deputy Undersecretary Brent Neiman on Tuesday (1), the lack of reporting by the People’s Bank of China (PBOC) on the details of each of its swap arrangements has led to “confusing and inconsistent treatment” by the IMF of these agreements.

Sri Lanka entered a $ 1.4 billion worth of PBOC swap arrangement in 2021 which will be expiring in December 2024.

Speaking at the Committee on Public Finance (COPF) last month, Central Bank of Sri Lanka (CBSL) International Operations Department Director Dr. Sumila Wanaguru said that the People’s Bank of China swap worth $ 1.4 billion is not cashable at the moment as some conditions are not met, but will maintain it as a standby arrangement.

One of the main conditions of cashing the PBOC swap was to have three months of import cover in the reserves and according to Wanaguru, as of the end of July, Sri Lanka has 3.8 months of import cover in the reserves with $ 5,652 million.

Further, Neiman said that PBOC swap lines “often come with opaque restrictions on their use and potentially do not satisfy the IMF’s rule that reserve assets must be readily available and controlled by the monetary authorities.

Any arrangements “that carry onerous use restrictions or where the terms are not publicly disclosed are also not generally in line with the US’s vision for global debt and development finance,” he said.

Neiman said that the IMF has accounted in different ways for the PBOC swap lines for different countries, citing cases from Sri Lanka, Laos, Suriname and Argentina. For example, while in Sri Lanka the lines were termed “currently unusable,” in Laos fund staff indicated it was “uncertain” whether the assets were tied to certain purposes, he said.

IMF treatment “should be consistent and compliant with its stated policy when it calculates reserves, analyses debt sustainability, and secures financing assurances,” Neiman said.