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Pending Chinese loan expanded to $ 350 m

08 Aug 2021

  • Amount extended from previously pledged $ 200 m
  • Govt. says likely to request more from China
  • SL to receive loan in Chinese currency denomination
By Yakuta Dawood The China Development Bank (CDB) is expected to expand the pending $ 200 million, which it agreed to provide to Sri Lanka as part of a $ 500 million loan extended to the country in the first half of this year, to $ 350 million based on a request made by the Sri Lankan authorities, The Sunday Morning Business learns. Speaking to us, Treasury Secretary S.R. Attygalle stated that Sri Lanka has already received a sum of $ 500 million under the agreement signed between the Central Bank of Sri Lanka (CBSL) and the People’s Bank of China. He said that even though it is a $ 700 million loan agreement, CDB is now expected to add another $ 150 million, making the second tranche of the loan $ 350 million, which is yet to be received by Sri Lanka. “Some Chinese money equivalent to $ 350 million is to be received, for which the authorities are currently working on the documentation process. However, we are hoping to receive it within this month,” Attygalle said. When inquired if Sri Lanka will request for a larger payment of the pending swap facility, Attygalle highlighted that the authorities might request for it, but he is not fully aware of the situation. Speaking to us last month, Central Bank of Sri Lanka (CBSL) Governor Prof. W.D. Lakshman hinted that more swap lines with a number of countries are in the pipeline. However, he did not reveal any further information at the time, as he said it could hinder the negotiations taking place with the respective countries. Subsequently, speaking to us in April, Attygalle also mentioned that the remaining $ 200 million in renminbi-denominated credit would be issued to the country during Sri Lankan President Gotabaya Rajapaksa’s then upcoming visit to China. Sri Lanka received a $ 500 million loan from China in April. Issuing a statement, the Sri Lankan Embassy in China said: “This loan will infuse vitally required foreign exchange into the Sri Lanka economy. These funds will help with government efforts to facilitate rapid economic recovery following the setbacks caused by the Covid-19 pandemic.” These loans were received from China after the People’s Bank of China approved a swap facility of $ 1.5 billion for the CBSL. Accordingly, the agreement signed between the CBSL and the People’s Bank of China is valid for three years and the deal was made during a period when Sri Lanka was struggling with the Covid-19 pandemic. China has further agreed to provide a $ 989 million loan to Sri Lanka to build an expressway that will connect its central region to the Chinese-run seaport, which is part of Beijing’s plan for a line of ports stretching from Chinese waters to the Persian Gulf. Accordingly, as per the study conducted by the Chatham House, reports claim that the cumulative value of Chinese infrastructure investment to Sri Lanka amounted to $ 12.1 billion between 2006 and July 2019. In the meantime, the Bangladesh Bank (BB) Board on 23 May approved in principle a draft $ 200 million currency swap deal with Sri Lanka for the purpose of meeting foreign currency expenditures. With reference to the official statements made by BB, the currency swap agreement will be finalised after being legally vetted by Government-approved lawyers and would get around 1-2% plus LIBOR (London Interbank Offered Rate) from Sri Lanka as interest. Also, the Government of the Republic of Korea in April agreed to provide concessional loans up to an aggregate commitment amount of $ 500 million to finance mutually agreed projects in Sri Lanka from the Economic Development Co-operation Fund (EDCF) of the Export-Import Bank of Korea. Accordingly, both Governments have agreed to sign a new framework arrangement for the period of 2020-2022 in order to obtain loans through the EDCF to finance projects that are mutually agreed upon (up to the amount of $ 500 million). Sri Lanka is also liable to repay nearly $ 4.5 billion in foreign debt annually until 2025. In this regard, the Ministry of Finance made a firm statement highlighting that the CBSL and the Ministry are planning on meeting the country’s debt obligations through foreign inflows, export income, and taxes, and clearly mentioned that Sri Lanka will not be seeking the International Monetary Fund (IMF).


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