Colombo: – India has offered a helping hand to Sri Lanka, to provide an impetus to the Sri Lankan economy, during the crisis created due to the Coronavirus pandemic. Before this, India has supplied Hydroxychloroquine to Sri Lanka. India will be exchanging currency worth USD 400 million to tide over the foreign currency crunch faced by Sri Lanka. The Sri Lankan government had asked India for this assistance.
Curfew has been imposed in Sri Lanka since the last one month. The curfew had been relaxed for some time. But after Coronavirus cases started surfacing, it was imposed once again. The Sri Lankan economy, mainly driven by the revenues from tourism, has come under severe stress. The Sri Lankan government is faced with the challenge of satisfying the basic necessities of the people and providing them with health care, resulting in increased government expenditure. The government is forced to invest more, even in the banks. The Sri Lankan imports also have increased, and the country has almost stopped receiving foreign exchange. This has put the foreign exchange reserves under stress and has caused a drop in the price of the Sri Lankan Rupee against the USD. This could put the economy under further stress. Therefore, the Sri Lankan government had requested India to intervene to stabilise the Sri Lankan Rupee.
Generally, in such a crisis, the government buys dollars from the open market, or borrow dollars on credit. But these measures are not viable for the Sri Lankan government. Sri Lanka, already reeling under a huge Chinese debt, taken at high-interest rates, would have to bear an added debt burden. Therefore, the currency swap route was selected.
Under this arrangement, India will be giving Sri Lanka USD 400 million at the prevailing exchange rates. After Sri Lanka succeeds in tiding over the crisis, the transaction will be reversed for the same amount. The Sri Lankan government will enter this agreement with the Reserve Bank of India. Sri Lankan Prime Minister Mahinda Rajapaksa’s cabinet of ministers passed this proposal on Friday in the presence of President Gotabaya Rajapaksa.
Bandula Gunawardena, the Information and Broadcasting Minister in Sri Lanka informed, ‘This agreement will be signed to improve the foreign exchange reserves of the country. This will enable the government to satisfy the country’s needs for a certain period.’
A few days ago, Indian Prime Minister Narendra Modi held a dialogue with the SAARC country heads through teleconferencing and offered a helping hand to all these countries in view of the Coronavirus crisis. The COVID-19 fund was formed with the Indian initiative. This fund is assisting the SAARC countries for carrying on with their fight against Coronavirus. The Indian influence has increased as it has offered a helping hand in the time of this crisis. During this tele-meeting, Sri Lankan President Gotabaya Rajapaksa had apprised Prime Minister Modi regarding the economic crisis faced by Sri Lanka. This currency swap agreement is based on this telephonic discussion between the two leaders.