China's 'deceitful' currency swap with Sri Lanka worth USD 1.5 billion

Colombo [Sri Lanka], June 9 : Sri Lanka is reeling under a severe economic crisis and one of the reasons for it was the "deceitful" Chinese currency swap with Sri Lanka worth USD 1.5 billion.
Sri Lanka's Prime Minister Ranil Wickremesinghe on Tuesday said that the swap provided by China in December 2021 was entered into by officials of the then-Government to deceive the public, reported The Morning.
"Sri Lanka is required to have enough foreign reserves to cover three months of imports to utilise the swap," said Wickremesinghe in the parliament, adding that, by the time the swap was provided by the People's Bank of China (PBoC) in December 2021, Sri Lanka didn't have foreign currency to cover three months of imports.
The amount under the swap agreement (USD 1.5 billion) was included in the CBSL's official foreign reserves in December 2021, raising reserves to USD 3.1 billion by the end of 2021 and Sri Lanka should at least have USD 4.5 billion in foreign reserves to cover three months of imports.
Putting the blame on Sri Lankan officials, he said, "But even in such circumstances, our officials took a loan to deceive the country."
Moreover, as per conditions put forward by China, to which Sri Lanka had agreed, the latter cannot use the funds, but rather only add numbers to its foreign reserves, reported The Morning.
"We have requested the Chinese Government to consider removing those conditions," Wickremesinghe said.
Dr Indrajith Coomaraswamy, former Governor of the Central Bank of Sri Lanka (CBSL) also highlighted the deceitful swap at an event.
He said that China would not be willing to alter the conditions that render the three-year swap unusable in the near future, as it could then be termed a loan facility, and thus Sri Lanka would come under pressure from the International Monetary Fund (IMF) and others to include it in the stock of debt to be restructured.
Therefore, he said that it would make China hesitate in terms of removing that condition to enable Sri Lanka to use that money, as it would clearly be a disadvantage for China, reported The Morning.
He added that it would be a challenge to convert the swap of the Chinese Yuan (CNY) 10 billion into a usable form.
CBSL and PBoC entered into a currency swap agreement for CNY 10 billion in March 2021, valid for three years, "with a view to promoting bilateral trade and direct investment for economic development".
However, a statement issued by CBSL after the swap agreement was signed, said that both central banks agreed to use the swap "for other purposes agreed upon by both parties".
This swap agreement was approved by the Cabinet at the time, on the recommendation of the CBSL's Monetary Board.