Lanka plans to extend $1.5bn Indian currency swap: FM

Reuters/ColomboSri Lanka plans to extend a $1.5bn currency swap with the Reserve Bank of India (RBI) by one year, its finance minister said yesterday.Sri Lanka’s balance of payments (BOP) is estimated to have recorded an overall deficit of $2.32bn during the first three quarters of 2015 compared with a surplus of $2bn recorded a year earlier. Deterioration in the overall BOP has come from loan repayments and higher imports.The International Monetary Fund (IMF) last week warned of an uncertain economic outlook, loose monetary and fiscal policies and urged appropriate actions to safeguard economic stability.“We expect to extend the $1.5bn Indian swap by one year,” Finance Minister Ravi Karunanayake said.India’s central bank entered into the swap agreement with its Sri Lanka counterpart in March last year. Sri Lanka received $400mn in April and $1.1bn in September.Karunanayake told parliament that the island nation’s reserves were at “a healthy” $6.1bn. The central bank data showed the reserves have fallen over a quarter from $8.2bn by end of last year mainly due to debt repayment.The country’s foreign currency reserves are under pressure as $4.75bn is expected to be repaid on foreign loans before November 2016, central bank data showed.Karunanayake also said there had been $750mn of inflows since the budget was announced on November 20 mainly from remittances. The government has decided to borrow $350mn from Turkey Exim Bank funds for development projects.Analysts said higher imports, foreign borrowing due to low interest rates and defending the currency had depleted reserves. The central bank sold a net $1.1bn in the three months through November.Officials at the central bank, however, said dollar selling was to facilitate oil imports and foreign outflows from government securities.Apart from the RBI swap, Sri Lanka has borrowed $2.15bn through two 10-year sovereign bonds and more than $1.7bn from development bonds this year.