Sri Lanka is looking forward to a $1 billion currency swap with India to boost its foreign reserves and attract more investment into the island nation after its economy was hit hard by the coronavirus pandemic.
Issuing a government reaction to the downgrading of Sri Lanka’s credit rating by Moody’s investor services, country’s state minister of capital markets Ajith Nivard Cabraal on Wednesday said that the latest negotiations with India for $1 billion swap was in addition to the 400 million Sri Lanka received under swap with the RBI in July.
“Sri Lanka looks forward to a $1 billion currency swap with India’s Reserve Bank to boost its foreign reserves with action to attract more investment in to the island as measures to boost the island’s reserves,” he said.
The Reserve Bank of India in July this year signed necessary documents for extending a $400 million currency swap facility to Sri Lanka to boost the island nation’s draining foreign exchange reserves due to the coronavirus pandemic.
The currency swap arrangement will remain available till November 2022.
Cabraal said the other options available with them were of Samurai (Japanese), Panda (Chinese) bonds and a $700 million syndicated Chinese loan.
On Monday Moody’s downgraded the Government of Sri Lanka’s long-term foreign currency issuer and senior unsecured ratings to Caa1 from B2 and changed the outlook to stable.
This was following a review for downgrade that had started mid-April 2020. Moody’s said the decision to downgrade reflected its assessment that the coronavirus-induced shock, which Moody’s regards as a social risk, will significantly weaken Sri Lanka’s already fragile funding and external positions.
Cabraal described the downgrading as premature and unfair.
“The negotiations with India which is underway for $1 billion swap was in addition to the 400 million Sri Lanka received under swap with the RBI in July,” he said.
Sri Lanka would receive 700 million dollars as the second tranche of the $1.2 billion syndicated Chinese loan of which 500 million had been received in March.
“Sri Lanka is also looking forward to 1 billion dollar repurchase agreement with the US Federal Reserve,” he said.
Sri Lanka’s economy, especially the tourism sector, has been hit hard since last year – initially by the Easter Sunday attacks, which killed over 250 people and later by the ongoing coronavirus pandemic.
Till now, the island nation has reported 3,380 infections and 13 deaths, according to local media report.
