The US$ 400 million cross-currency SWAP” for four Sri Lanka banks extended by the International Finance Corporation (IFC) of the World Bank is only to trade cash flows in one currency with that of another IFC’s Country Manager for Sri Lanka, Alejandro Alvarez de la Campa disclosed.
He has confirmed that there’s no new Forex inflow due to the SWAP as predicted by some economic experts and state officials.
Under the facility, IFC will provide up to $400 million over one year to Commercial Bank of Ceylon (CBC), Nations Trust Bank (NTB) and Sampath Bank to help facilitate the imports of essential goods.
It has no impact on Sri Lanka Forex market or foreign reseves of the the Central Banka he pointed out.
Buit addressing the ceremony to mark the signing of IFC’s cross currency swap, the Central Bank Governor Nandalal Weerasinghe said that while the forex market had dried up at the time, the situation is now steadily improving.
“I think it’s a good time that IFC has come on board and support this facility that will provide a lot more confidence to the forex market, in addition to the progress that we have made so far,” he said.And it would he said instill more confidence into the domestic market.
Several economic experts said that Cb governor uttering nonsense as the rupee has been defended from both appreciation and depreciation via central bank’s moral suasion, which has compelled the market to trade forwards.
The rupee forwards have also been capped by the central bank from time to time, dealers have said.
These include food items, medicines and fertilizers – most of which are traded in US dollars. The facility will further support the banks financing of exports of goods and services for their clients while allowing them to make USD-denominated debt repayments.
However country head of IFC noted that IFC first conceived of using this innovative approach last year – at a time when Sri Lanka was cut off from international financial markets due to high debt, and when it was brought home to all that foreign currency was vital to help the country import the goods it needed.
The move comes as Sri Lanka continues talks with the International Monetary Fund and other countries over Sri Lanka’s debt.
The country of 22 million people has been facing its worst economic crisis in seven decades, with Sri Lanka suspending payment on most foreign debt since April last year. Simply put, the government ran out of the foreign exchange needed to cover food and fuel imports and to service its external debt.
He said supporting the private sector with critical financing will contribute to the country’s urgent need to stabilize its economy.
“It is not just about supporting businesses and helping facilitate the imports of essential goods. It’s also about the signal this sends to the market. It should send a strong message to the investor community, and hopefully spur more capital inflows – all of which would be critical for a resilient recovery of the economy,” he pointed out.
For Joon Park, IFC’s Portfolio Manager, Financial Institutions Group South Asia, delivering on the facility “wasn’t a smooth ride as it took longer than expected due to the ratings downgrade of the sovereign and the corporates.”
“But here we are today. And with this official signing, we expect this financing to enhance confidence within the investor community, attract fresh capital inflows and support a broad range of needs of families and businesses,” he said.
“Through trade lines, we also plan to support essential goods imports, and further assist our client banks with other long-term funding and advisory services in the future.”