Cash strapped Sri Lanka will get another year to repay the $200 million loan from Bangladesh Bank as the island nation is experiencing its worst debt and economic turmoil.
The development comes after the Sri Lankan government requested more time to return the $200 million it took in exchange for an equivalent amount of Sri Lankan rupees in August last year, said a top official of the central bank, requesting anonymity.
As per the currency swap agreement, the amount was due next month.
On April 13, Sri Lanka announced defaulting on its entire $51 billion of external debt until a bailout from the International Monetary Fund comes through. The assistance from the IMF is yet to be worked out.
Given the acute foreign exchange scarcity that the island nation of 22 million is facing -- which has left the government unable to import basics including food and medicine -- the Bangladesh Bank has decided to agree to the deferral.
As per the agreement with Sri Lanka, Bangladesh was supposed to receive an interest payment of Libor + 2% if the amount was returned in three months.
Libor, the acronym for London Interbank Offer Rate, is the global reference rate for unsecured short-term borrowing in the interbank market as a benchmark for short-term interest rates.
The three-month Libor averaged around 0.53% in 2021.
Had Sri Lanka paid back in six months, the interest amount would have been Libor + 2.5%.
Since Sri Lanka failed to return the dollars in time, it has assumed a higher interest rate.
Bangladesh's foreign exchange reserves stand at about $44 billion, enough to cover six months' import bills.
