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Sri Lanka repays $100m of loan from Bangladesh

Remaining amount anticipated this month

FE REPORT | September 02, 2023 00:00:00

Sri Lanka has repaid another $100 million of the total $200-million loan it took from Bangladesh under a currency-swap mechanism two years ago to combat an acute economic crisis.

The second instalment of the loan came just a couple of weeks after the first repayment of $50 million.

With this latest payment, the island nation has now cleared 75 per cent of the total it borrowed from Bangladesh in 2021.

Confirming the deposit of the second loan instalment by Sri Lankan authorities, Bangladesh Bank (BB) Spokesperson Md Mezbaul Haque said that it was received on August 31.

He also mentioned that this amount increased the country's foreign-exchange reserves.

"We are expecting the third instalment within this September," added Mr Haque, a BB executive director.

Seeking anonymity, another BB official said that the second loan instalment has already been added to the country's foreign-exchange reserves.

"It is over $102 million, including the interest."

"The remaining part of the loan is supposed to be received within this month," the central banker said, adding that there is no concern about the foreign-exchange reserves since many more funds are in the pipeline and will come from various sources.

"People will see a significant leap in the reserve volume by December," the official said, adding that the island state is steadily recovering from forex dearth and economic crisis.

Bangladesh provided a $200 million loan from its foreign reserves to Sri Lanka in 2021 to assist the South Asian country in recovering from an economic shock.

The first instalment of $50 million was sent on August 19, followed by a second payment of $100 million on August 30 and another $50 million in September of that year.

The one-year loan's term initially expired in September 2022 but was subsequently extended twice within three months, ultimately granting the neighbouring country an additional six months until September to repay the loan.

According to Bangladesh Bank (BB) statistics, the country's gross foreign exchange reserves stood at $29.21 billion as of August 30. According to the IMF's BPM6 manual, the gross figure was $23.07 billion.

Meanwhile, a Reuters report from Colombo said that Sri Lanka's key inflation rate eased to 4 per cent in August, down from 6.3 per cent the previous month, according to the statistics department. This marks continued stabilisation for the crisis-ridden economy.

Soaring inflation has severely impacted the economy for over a year, following a severe foreign exchange shortage that triggered the worst financial crisis in seven decades for the Indian Ocean island.

The Colombo Consumer Price Index (CCPI) reflected food inflation reaching a negative 4.8 per cent in August, after registering a negative 1.4 per cent in July. Non-food inflation was 8.7 per cent, as reported by the Census and Statistics Department.

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