• Attempts to renegotiate terms with PBoC futile: CBSL
• Sources reveal response from China has not been ‘favourable’

Despite several attempts by the Central Bank of Sri Lanka (CBSL) to renegotiate the conditions of the CNY 10 billion (equivalent to $ 1.5 billion) currency swap with the People’s Bank of China (PBoC), all attempts have proved futile as the response has not been favourable. 

Accordingly, the currency swap remains unusable to date, two years after the CBSL and PBoC entered into the agreement.

Speaking to The Sunday Morning Business, a high-ranking source at the CBSL revealed that there had been several conditionalities in the currency swap that had rendered it unusable and while several inquiries had been made previously to amend such conditions, the response had not been favourable. He further revealed that no negotiations were currently ongoing with the PBoC.

In June 2022, President Ranil Wickremesinghe revealed in Parliament that the Yuan 10 billion currency swap with the PBoC required a three-month import cover to draw on the swap and that the CBSL would seek to negotiate the condition with PBoC. 

Similar assertions were subsequently made by CBSL Governor Dr. Nandalal Weerasinghe. Despite such announcements, this currency swap, which was signed in March 2021, remains unamended and unusable. 

Commenting on the possibility of whether Sri Lanka would be able to utilise the CNY 10 billion currency swap subsequent to the receipt of the first tranche of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF), the source stated: “Our three-month import cover is around $ 3.5 billion and currently we have only around $ 2.5 billion. Therefore, it is unlikely that we will be able to comply with the condition even after we receive the facility. We will still have a shortfall.”

Despite several attempts by The Sunday Morning Business to contact the CBSL and State Minister of Finance Shehan Semasinghe, all such attempts proved futile.

Former Governor of the CBSL Dr. Indrajit Coomaraswamy, speaking at a webinar hosted by the CBSL Centre for Banking Studies (CBS) in June 2022, opined that China would not be willing to alter the conditions that rendered the three-year swap unusable in the near future, as it could then be termed a loan facility and thus Sri Lanka would come under pressure from the IMF and others to include it in the stock of debt to be restructured. 

“That would clearly be a disadvantage for China and that is why it is hesitating to remove that condition, which would enable Sri Lanka to use that money,” he stated.

CBSL and PBoC entered into the currency swap agreement for CNY 10 billion in March 2021 with a validity period of three years “with a view to promoting bilateral trade and direct investment for economic development” of the two countries. However, a statement by the CBSL after the swap agreement was signed said that both central banks had agreed to use the swap “for other purposes agreed upon by both parties”.