Toronto, May 26: For the first time, Bangladesh is going to provide a $200 million loan to debt-ridden Sri Lanka from the foreign exchange reserve in a swap deal. Although, the Daily Star in Bangladesh reported that, this debt amount would be $500 million.

It has been learned that, the board of the Bangladesh Bank recently approved the agreement under special consideration in response to a request for liquidity support from Sri Lanka as it is at risk of defaulting according to global rating agencies and its credit score is now the same as the one assigned to Argentina, Mozambique, and Belize.

The internal treasury investment guideline says the Bangladesh Bank can invest its foreign exchange reserve in high-rated bills and bonds of different countries like the US treasury bills.

Under the swap deal, the Bangladesh Bank will provide the fund at 2% interest, which is higher than other current global rates. The deal will be for one year during which the fund will be provided. After getting the fund, Sri Lanka will have to repay it by three months. As per the deal, the Sri Lankan government will exchange their currency with the Bangladesh Bank equivalent to the amount of dollars they will be given. There will be a government guarantee as well.

The currency swap initiative was taken after Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh in March to join the twin celebrations of the golden jubilee of independence and the birth centenary of Bangabandhu Sheikh Mujibur Rahman.

Currently Bangladesh’s foreign exchange reserve stood at nearly $44 billion in the first week of May, according to the Bangladesh Bank data, which is enough for meeting import expenditures for nearly eight months. The International Monetary Fund considers foreign exchange reserve adequate when the balance is enough for meeting import expenditures for three to eight months.

“There is no risk in this investment because we have a good position in foreign exchange reserve,” said Md Serajul Islam, executive director and spokesperson for the Bangladesh Bank. Moreover, the return from the investment is higher than that from others, he said.

Bangladesh’s imports were rising as economic activities continued to be normal over a few months before the onset of the second wave of corona pandemic. Also, the surplus in the current account balance started to decrease and in March, the surplus dropped sharply on the back of imports of rice and industrial raw materials.

Besides, the current account surplus dropped to just $125 million from $1.36 billion in the July-February period. In February, the surplus dropped by $652 million.