Sri Lanka Finance Minister Visit to India
India has agreed to help Sri Lanka to deal with its food and energy crisis .
This was agreed by the visiting Sri Lankan Finance Minister Mr. Basil Rajapaksa and the Finance Minister Mrs. Nirmala Sithraman and External Affairs minister Mr. S. Jaishanker. The decision included a four-pillar initiative to help Sri Lanka.
The four pillar initiative comprises-
- India will provide loans to Sri Lanka to enable it to purchase food, medicines and fuel from India.
- A currency swap agreement to deal with Sri Lanka's balance of payment issues,
- An “early” modernisation project of the Trincomalee oil farms that India has been pursuing for several years, and
- Sri Lankan commitment to facilitate Indian investments in various sectors.
Currency Swap Agreement
- The word swap means exchange, A currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies. The parties are essentially loaning each other money and will repay the amounts at a specified date and exchange rate. The purpose could be to reduce the risk of fluctuating exchange-rate (also known as currency risk), or to reduce the cost of borrowing in a foreign currency.
- Central banks and Governments engage in currency swaps with foreign counterparts to meet short term foreign exchange liquidity requirements or to ensure adequate foreign currency to avoid Balance of Payments (BOP) crisis till longer arrangements can be made.
- In this context, a currency swap is effectively a loan that India will give to Sri Lanka in dollars, with an agreement that the debt will be repaid with interest in Sri Lankan rupees. For Sri Lanka, this is cheaper than borrowing from the market, and a lifeline as it struggles to maintain adequate forex reserves even as repayment of its external debts looms. The period of the currency swap will be specified in the agreement.
President of Sri Lanka - Gotabaya Rajapaksha
Prime Minister of Sri Lanka - Mahinda Rajapaksha
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