Sri Lanka is discussing with China to amend the terms and conditions of the $1.5 billion currency swap deal with Beijing so that it can be used for imports amidst an unprecedented economic crisis in this island nation, a media report said on Thursday.
According to the terms and conditions stipulated in the agreement signed with China for the swap arrangement, the amount cannot be used unless Sri Lanka has foreign reserves sufficient for three months. The swap deal was signed last year.
The deal is on hold because Sri Lanka has run short of the required amount of reserves. The swap deal enables Sri Lanka to borrow Chinese currency for payment of imports, the Daily Mirror newspaper reported, quoting a source.
However, the Sri Lankan authorities have now requested the Chinese side to amend the particular clause of the agreement to make use of this currency facility extended to Sri Lanka, the report said.
According to the source, the Sri Lankan side informed that the amendment of the clause would be beneficial for China since it would be used for the imports of Chinese products, it said.
Sri Lanka signed a 10 billion yuan (about $1.5 billion) currency swap deal with China for a three-year period to be used for promoting bilateral trade and direct investment between the two countries, the Central Bank of Sri Lanka announced in March last year. The deal was signed between the Central Bank of Sri Lanka (CBSL) and the People's Bank of China (PBoC).
The deal came as Sri Lanka was undergoing a difficult time with COVID-19, dealing a severe blow to its economy, especially its $4.5 billion tourism industry which was already hit by the Easter Sunday terror attacks in 2019.
Sri Lanka is currently facing its worst economic crisis since independence from Britain in 1948.
The economic crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and other fuel, toilet paper, and even matches, with Sri Lankans being forced to wait in lines lasting hours outside stores to buy fuel and cooking gas.
Meanwhile, China has reaffirmed its continual and concrete support including grants, trade and investment to Sri Lanka to help the debt-ridden country tide over its worst economic crisis.
The Chinese embassy in Sri Lanka said on Twitter that Chinese banks were ready to negotiate with Sri Lanka to properly handle matured debts.
"On June 14, Ambassador Qi Zhenhong called on PM Ranil Wickremesinghe and reaffirmed China's continual and concrete support including grant, trade and investment to Sri Lanka during the present crisis. Chinese banks also ready to negotiate with Sri Lanka to properly handle matured debts," the embassy tweeted.
Sri Lanka is also in negotiation with several Chinese companies to purchase chemical fertilisers on credit for the next Maha season. The Agriculture Ministry is now required to come out with the quantity of requirements.
India has provided a $55 million Line of Credit to Sri Lanka for the import of fertilisers, in a bid to help the island nation tide over its food scarcity, the Indian High Commission said last week.
Addressing Parliament recently, Prime Minister Wickremesinghe said Sri Lanka will need $5 billion to ensure that the people’s daily lives are not disrupted for the next six months.
The nearly bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, announced in April that it is suspending nearly $7 billion foreign debt repayment due for this year out of about $25 billion due through 2026.