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Sri Lanka debt relief, US$400 swap line from India still under discussion

ECONOMYNEXT – Discussions still ongoing with Sri Lanka over a request 400 million US dollar swap line for the central bank and debt relief, India’s High Commission (embassy) in Colombo said.

“The matter had been taken up at the leadership level and has been followed up by senior functionaries bilaterally,” the spokesmperson for the High Commission said.

“Most recently, the High Commissioner of India to Sri Lanka held discussions at senior levels in Colombo yesterday and today, on progressing the ongoing official discussions regarding Sri Lanka’s requirements.”

Sri Lanka’s central bank has requested a 400 million US dollar swap line from India under SAARC facility while relief of debt due to India has also been made.

Sri Lanka’s central said last week it had done what was needed.

“All necessary prerequisites for signing the Swap Agreement have been fulfilled by the Central Bank,” the monetary authority said.

President Rajapaksa had also requested another swap line of billion US dollars which had been given to Sri Lanka earlier after unprecedented money printing fired credit in March 2020 put the rupee under pressure.

India and Sri Lanka was expected to finalize investments long delayed investment in port and power generation which had been stalled.

President Rajapaksa had asked Prime Minister Modi to “direct those responsible from India’s side to expedite construction of the East Terminal of the Colombo Port as early as possible,” a statement from the President’s office said on May 24.

Since then the terminal project has been questioned by the shipping minister.

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But two projects in rail and renewable energy was given the go ahead earlier this month.

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Sri Lanka also got 1.5 billion US dollars from the Reserve Bank of India after the central bank made pro-cyclical rate cuts and printed money in 2015 just as the credit system was recovering from a currency crisis an earlier currency crisis in 2011/2012.

Sri Lanka is yet to finalize a program with the International Monetary Fund, where a request was also made after the rupee came under pressure.

In the wake of weak private credit in April the rupee started to stabilize in May. Import and exchange controls have also been imposed.