Sri Lanka To Seek $ 400 million Financial Facility From RBI To Meet Short Term Financial Needs

The pact with the RBI for a Bilateral Currency Swap Arrangement worth $400 million is aimed at boosting Sri Lankan's foreign reserves.

Customers queue at a mobile ATM of a state bank during a government-imposed nationwide lockdown as a preventive measure against the COVID-19 coronavirus, in Colombo. PIC/AFP.

Colombo, April 24: In order to gain financial stability, Sri Lanka is likely to enter into an agreement with Reserve Bank of India for a currency swap worth $400 million to boost the foreign reserves, said a top minister. In fact, the Cabinet has passed the proposal made by Sri Lankan Prime Minister Mahinda Rajapaksa as the Finance Minister to enter into an agreement with the RBI for the financing facility to meet short-term international liquidity requirements, Co-Cabinet spokesman Information and Communication Minister Bandula Gunawardena said to PTI. The Sri Lankan government will sign the pact with the RBI for a Bilateral Currency Swap Arrangement worth $400 million. According to PTI, Gunawardena said, the facility from the RBI will aid the island nation's foreign reserves. Sri Lanka has taken important economic measures to support the economy badly impacted Covid-19 outbreak. So far 373 people have been affected and seven deaths have been recorded. Addressing the Cabinet media briefing on Thursday, Gunawardena said the Cabinet meeting chaired by President Gotabaya Rajapaksa paid special attention to the control of the coronavirus pandemic, its success and the distribution of goods and relief to the people. The minister had stated that globally countries are fighting against the disease which has left the economies in a slowdown and worse since World War II and a single country alone cannot find a solution to the crisis. Hence, Cabinet of Ministers has approved this proposal in order to ensure the financial stability of the country, Gunawardena said. Sri Lanka has ordered import restrictions to prevent non-essential imports. The measure is also taken in view of the local rupee falling to its historical low against the US dollar. The rupee now hovers over 195 to the dollar gaining somewhat from being down to 200-mark. The government has also announced talks with Asian Development Bank and China's Asian Infrastructure Investment Bank. A $300 million budgetary support is anticipated from the ADB, officials said. The announcement to enter into the $400 million deal with India came amid rating agency, Fitch on Wednesday warning Sri Lanka to reform its soft-peg and block the ability of its domestic operations department to inject large volumes of cash below the ceiling policy rate to stop monetary instability. In March, during a video conference of Prime Minister Narendra Modi along with leaders and representatives from SAARC nations, Sri Lankan President Gotabaya Rajapaksa said, "Our economy has taken a severe blow due to the coronavirus, particularly in tourism... Our experts are also adversely affected." Tourism is the third-largest earner of foreign exchange in Sri Lanka. The decline in tourist arrivals has hit the island nation's tourism industry in a big way. Largely owing to the COVID-19 pandemic, the World Bank recently forecast Sri Lankan economy to contract by 3 per cent this year as against a 2.4 per cent estimated growth last year, whilst the IMF predicted the global economy to contract by 3 per cent as well.