Sound macroeconomic management: Sri Lanka repays Bangladesh’s entire loan

Staff Reporter  :
In an encouraging success story of macroeconomic management, the recently bankrupt Sri Lanka has repaid its entire $200 million loan to Bangladesh taken under a currency swap agreement two years ago, along with total interest of USD 25 million.

On Thursday, Sri Lanka paid about $50 million and $4.5 million interest in their final installment, Md Mezbaul Haque, executive director and spokesperson for the Bangladesh Bank, told The New Nation.

Earlier, On August 20, Sri Lanka initiated the repayment by returning the first installment of $50 million.

Then on August 31, Colombo paid another $100 million in the second installment out of $200 million loan it took from Bangladesh.

With the third and final installment on Thursday night, the Island state paid off their entire loan taken from Bangladesh.

Economists have termed the Sri Lanka’s successful repayment of its $200 million loan to Bangladesh a testament to sound macroeconomic management and commitment to implementing sound economic policies by the Island nation.

Sri Lanka took this loan for a period of one year in May 2021. As per the agreement, Sri Lanka committed to repay the loan with an interest rate of 1.5 percent plus the current LIBOR rate of 5.42 percent.

However, the country failed to repay the loan due to a worsening domestic economic crisis and the Sri Lankan government declared itself bankrupt. Sri Lanka which announced its first-ever sovereign default in April 2022 has negotiated with the International Monetary Fund (IMF) for a bailout of $2.9 billion.

The loan taken from Bangladesh was supposed to be repaid in three installments within nine months, but the time was extended three times by about 27 months as the country could pay back the money.

Sri Lanka paid back its loan as its embattled economy is staging a recovery from its worst economic crisis just a year ago.

Its inflation rocketed to 69.8 percent in September last year.

In July, however, inflation came down to 6.3 percent.

Meanwhile, Bangladesh is also facing a foreign exchange crisis after its reserve dropped sharply in the past one and a half years owing to higher import bills compared to lower-than-expected remittance and export earnings.

The gross forex reserve came down to $21.45 billion on September 21 in line with the International Monetary Fund’s calculation formula, according to the data from the central bank.