Sri Lanka pays back $50 million to Bangladesh

Sri Lanka, which went bankrupt last year, has paid back $50 million of the first instalment of a loan taken from Bangladesh under a currency swap agreement after almost two years.

Bangladesh provided a $200 million loan from its foreign exchange reserves to the island nation in August 2021 to help it meet its foreign exchange crisis. 

Although the loan was supposed to be repaid in three instalments within nine months, the time was extended three times by about 27 months as the country could pay back the money, according to a central bank official.

The current extension will expire in September, he added.  

Mezbaul Haque, spokesperson for the Bangladesh Bank, said the first instalment sent by Sri Lanka on 17 August has been added to the country's foreign exchange reserves.

"Another instalment is scheduled to be paid on 30 August. The Bangladesh Bank is hopeful that the entire loan will be paid back this year," he told The Business Standard.

According to the swap deal, Sri Lank is supposed to pay Bangladesh 1.5% interest in addition to the London Interbank Offer Rate, or LIBOR, against the loan.

At that time, the LIBOR rate was less than 1%.

As per the agreement, the island nation has paid an interest rate of 1.5% plus the current LIBOR rate of 5.42% along with the first instalment, a central bank official told TBS.

According to sources at the central bank, Sri Lanka has paid $51 million to Bangladesh, of which $1 million is loan interest.

The country is due to return another $100 million later this month, and the repayment of the last instalment of $50 million is due to mature in September, they added.

Sri Lanka, which announced its first-ever sovereign default in April 2022, has negotiated with the International Monetary Fund (IMF) for a bailout of $2.9 billion.

The island nation faced its worst economic crisis in history due to a shortage of foreign exchange reserves.  

An imperative in the IMF bailout is to restructure external debt, which needs to be completed by September.

Sri Lanka said on Monday that its inflation has dropped to 6.3%, a single-digit figure for the first time in two years, providing much-needed relief to the people amidst the worst financial crisis, reports The Times of India.

The last time single-digit inflation was recorded was 5.8% in September 2021. The highest inflation since the island nation's economy came under its worst crisis was 69.8% in September last year.

Sri Lanka's foreign exchange reserves have risen in part due to rising dollar receipts from tourism and remittances. These increased inflows, together with an IMF bailout and progress on debt restructuring, are stoking hopes of a turnaround for the nation.

The multilateral lender will hold its first review of its $3 billion loan program around September.

At the end of last year, the country's total foreign exchange reserves were $1.9 billion, and they almost doubled to $3.7 billion at the end of June this year.